Apple Has Juice For A Comeback

2/18/2013


  Recent Price
$468
  Dividend
$10.60
  Yield
2.3%
  P/E Ratio
11
  Shares (millions)
947
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$705.07 - $435.00

Apple ($468; AAPL) picked up a few bruises in the last two quarters, and many investors have lost their taste for the stock. Per-share profits dipped and sales missed the consensus in the December quarter. And the March-quarter outlook was discouraging. Apple tried to use the quarter to reset analyst expectations, but the company couldn't ease these concerns:

• Product launches set a dizzying pace last year. Can Apple keep up as competition stiffens?

• Growth in high-end smartphones has slowed, while the low-end market accelerates. Can Apple duplicate its success with cheaper devices, especially in emerging markets where carriers are less likely to offer subsidies that defray costs for consumers?

• How much does it matter if the iPhone loses traction with younger users, who prefer bigger screens and an identity apart from their parents?

In recent days, the shares have recovered some of their footing, though they fell after CEO Tim Cook failed to announce the company would share more cash with stockholders. Cook said Apple was considering other ways to allocate its cash and said the company was not hoarding, but he made no guarantees. Apple stock, down 9% since the last earnings report, has lost some of its shine. But the stock remains a Focus List Buy and a Long-Term Buy based on its very modest valuation and solid growth prospects.

What's left?

For now, Apple's market position seems secure. In the last three months of 2012, Apple took a 44% share of the global tablet-computer market, down from 52% in year-ago quarter but still well ahead of Samsung Electronics' ($1,400; SSNLF) 15% slice. Its share of the U.S. mobile-phone market jumped to 34% from 26%, overtaking Samsung's 32% share.

But gross profit margins slumped in the December quarter, down 4.7 percentage points to 41.6%. Apple concedes that profit margins will continue to recede because of the changing complexion of its product mix.

An ease in supply shortfalls has set up the March quarter for strong sales of less-profitable products, including the iPad mini (the iPad family generated 20% of sales in the last 12 months, with a gross profit margin of 37%) and Macintosh personal computers (13%, 25%). Even profitability of the iPhone (52%, 52%) has declined as demand for older models rose.

Conclusion

Apple shares could reward investors by moving higher on several potential catalysts: launches of a long-awaited TV or the recently rumored smartwach gadget; more evidence that Apple can gain a sizable slice of the enterprise market; a bold hike to the dividend; or success in low-end smartphone market.

Moreover, the company holds cash and long-term marketable securities of $137 billion, roughly $145 per share, and no debt. Critics complain that Apple isn't making wise use of its cash hoard, admittedly a rich man's problem. Shares trade at 11 times trailing earnings, or just seven times after backing out cash and marketable securities. Investors can obtain an annual report for Apple at 1 Infinite Loop, Cupertino, California 95014; (408) 996-1010; investor.apple.com.

APPLE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '12
13.81
vs.
13.87
18%
676.75
-
501.23
15 - 11
Sep '12
8.67
vs.
7.05
27%
705.07
-
570.00
17 - 13
Jun '12
9.32
vs.
7.79
23%
644.00
-
522.18
16 - 13
Mar '12
12.30
vs.
6.40
59%
621.45
-
409.00
18 - 12
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
156.51
44.15
2.65
705.07
-
354.24
16 - 8
2011
108.25
27.68
0.00
422.86
-
277.77
15 - 10
2010
65.23
15.15
0.00
294.73
-
180.70
19 - 12
2009
42.91
9.08
0.00
188.90
-
78.20
21 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
87
50
94
100
98
2
2

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com