Apple Earnings: Update

Apple delivered one of its most interesting earnings reports in a while this afternoon.

Just when the world was ready to bury Apple, it delivered a strong beat on revenue, EPS, and perhaps most importantly, iPhone sales.

Let’s get right to the big numbers everyone cares about:

  • Revenue: $45.6 billion, up 4% year-over-year, versus $43.6 billion expected by analysts.
  • EPS: $11.62 versus $10.16 expected by analysts.
  • iPhones: 43.7 million, up 17% year-over-year, versus 37.7 million expected by analysts.
  • iPhone ASP: $596 versus $610 expected by analysts.
  • iPads: 16.35 million, down 16% year-over-year, versus 19.7 million units expected by analysts.
  • iPad ASP: $465 v $430 expected by analysts.
  • Macs: 4.1 million versus 4.03 million expected by analysts.
  • iPods: 2.76 million versus 2.99 million expected by analysts.
  • Gross Margin: 39.3% versus 37.7% expected by analysts.
  • Q3 Revenue: $36-38 billion versus $38.1 billion expected by analysts.

Apple also announced a 7-for-1 stock split, and an increase in its buyback program and dividend.

On the earnings call, CEO Tim Cook explained the buyback by saying that he thinks Apple is massively undervalued. He believes it has a bright future ahead and the share repurchases are a sign of the board’s faith in Apple’s future.

He also said that the company was splitting the stock to “make it more accessible to a larger number of shareholders.” That sounds like Cook wants the share price to be more affordable for average mom and pop type investors. Right now, the shares are ~$524, which puts them out of price range for most normal people.

So, now that we’ve gotten the hard numbers out of the way, let’s talk about the most intersting things from this report and the earnings call.

The iPhone was way ahead of expectations. On the call, Cook said each category of the iPhone outsold the previous year in that category. (In other words, the 5S outsold last year’s 5, and the 5C outsold last year’s 4S, and the 4S outsold the 4 from last year.)

Cook didn’t get into product mix, but it seems like the iPhone 4S was the real star for Apple. The average selling price for the iPhone was down $41 sequentially, the biggest ever drop in the company’s history. On the earnings call, Cook said the 4S was selling well in greater China.

CHARTS ( Business Insider .com)

Read more: http://www.businessinsider.com/apple-q2-earnings-2014-4#ixzz2zkfc5VNg

APPLE Target $600

AAPL :

NASDAQ : US$526.24
BUY  Target: US$600.00

COMPANY DESCRIPTION: Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Wireless Equipment MWC MEETINGS AND FEBRUARY WIRELESS SURVEYS:

ANTICIPATE 2H/C2014 IPHONE MARKET SHARE GAINS 

Investment recommendation:

While a host of new Android LTE smartphones for C2014 were introduced at MWC, our meetings suggested the maturity of the high-end smartphone market with the lack of innovation in the new high- end Android models. Given the lack of differentiated Android smartphones, we believe Apple could gain market share of the high-end smartphone and tablet markets during 2H/2014 based on our belief new iPhones and iPads with larger screen sizes could create a strong upgrade cycle among Apple’s loyal base. In fact, our February wireless store surveys indicated the iPhone 5s was still the most aspirational smartphone and the top selling device in the U.S. and in many international markets despite seasonally slower sales trends. Given these trends, we increase our F’14/F’15 iPhone and iPad unit estimates. We maintain our BUY rating and raise our price target to $600.  Investment highlights  Following our MWC meetings and after evaluating feature sets for a host of new Android LTE smartphones introduced during the show, we believe Android OEMs have only added incremental improvements to their prior generation smartphones. For example, the announced Galaxy S5 is another solid product from Samsung but more incremental to the Galaxy S4 than a compelling upgrade. Please see our separate MWC report published today, titled ‘MWC Meetings focus on Internet of Things, China TD-LTE, smartphone innovation and IP licensing’ for additional details.  Our Feb U.S. surveys indicated the iPhone 5s was the top selling U.S. smartphone. However, our surveys indicated certain carrier upgrade policies were more strictly enforced and adversely impacted the near-term uptake of the increasingly popular early upgrade or smartphone leasing type of plans. Based on our surveys, we anticipate stronger take-up rates for these plans once current subscribers reach the end of their 24-month contracts. Given strong iPhone and iPad customer loyalty, we believe a new larger screen iPhone and iPad should create a very strong upgrade cycle in North America, especially given the timing of grandfathering in 2 year plans and globally given the popularity of larger screen smartphones and tablets.   Given these trends, we slightly increase our F2014/F2015 iPhone and iPad estimates resulting in our F’14/F’15 EPS estimates from $42.86/$47.56 to $42.92/$49.96. Valuation: Our $600 (was $570) price target is based on shares trading at 12x our F2015 EPS estimate.

Apple Update

AAPL : NASDAQ : US$550.50
BUY 
Target: US$570.00

COMPANY DESCRIPTION:
Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
SOLID RESULTS WITH HEALTHY GROSS MARGIN, BUT SOFTER IPHONE SALES IMPACT GUIDANCE
Investment recommendation:

Apple reported December quarter sales at the high-end of its previous guidance range with EPS above its implied guidance. However, total sales were below our expectations due to softer than anticipated iPhone sales of 51M versus our 54M estimate. While we anticipated softer Q2/F14 sales with seasonally lower iPhone and iPad product sales post the Holiday quarter, Q2/F14 guidance was below our expectations. Specifically, while our estimates anticipated a sharp Q/Q decline in iPhone sales during Q2/F14 consistent with Apple’s implied guidance, we anticipated this decline from our 54M December quarter estimate versus the 51M reported. Given the anticipated sell-off in the shares tomorrow combined with our belief Apple has a stronger pipeline of new products for C2014 versus C2013, we maintain our BUY rating. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating but lower our price target to $570.
Investment highlights
 Apple reported December quarter sales of $57.6B and EPS of $14.50 versus our $58.4B/$14.27 and StreetAccount consensus estimate of $57.5B/$14.09. While iPad and Mac sales exceeded our expectations, iPhone and iPod sales were below our estimates.
 We believe Apple’s soft Q2/F14 guidance is consistent with our expectations for a roughly 25% sequential decline in iPhone units post the Holiday season. We also note on a year-over-year basis, Apple’s guidance does not include inventory builds for iPhones or iPads, includes greater revenue deferrals and unfavorable F/X to create tougher year-over-year comparisons for growth. We were impressed with stronger gross margin results and guidance than our estimates.
 Primarily due to our lower iPhone unit estimates and somewhat due to a sharper decline in our iPod sales expectations, we lower our F2014 EPS estimate from $44.85 to $42.86 and our F2015 estimate from $50.24 to $47.56.
Valuation: Our $570 price target is based on shares trading at roughly 12x our F2015 EPS estimate

Apple : Rumours Re : Purchase of PrimeSense

Apple (AAPL : NASDAQ : US$519.00)
iBuy? Apple is in talks to acquire Israeli 3D sensor technology firm PrimeSense, according to AllThingsD. The report comes in response to a story in the Calcalist Israeli financial newspaper that Apple had acquired the firm for $345 million. AllThingsD said the deal is close to completion with PrimeSense’s investors hashing out the final details.

PrimeSense’s technology uses cameras and sensors to understand depth of objects in a three-dimensional space. The cameras help to identify people and their movements and gestures. The technology can be used to create a device that can serve as an alternative to a controller for video games or a remote control for televisions. An Apple spokesman declined to comment on the reports.

In a statement, PrimeSense said, “We are focused on building a prosperous company while bringing 3D sensing and natural interaction to the mass market in a variety of markets such as interactive living room and mobile devices. We do not comment on what any of our partners, customers or potential customers are doing and we do not relate to rumours or recycled rumours.”

Calcalist had reported in July that Apple was in talks to acquire the company with a price tag of $280 million.

 

Apple Update

AAPL : NASDAQ : US$520.63
BUY 
Target: US$580.00

COMPANY DESCRIPTION:
Apple designs, manufactures, and sells PCs, portable digital music players, and mobile communication devices, along with related software, services, peripherals, and networking solutions globally. The company was founded in 1976 and is headquartered in Cupertino, California.

Technology — Communications Technology — Wireless Equipment
STRONG IPHONE 5S DEMAND WITH IMPROVED SUPPLY, VERY STRONG INITIAL IPAD AIR SALES BUT IPAD MINI SUPPLY CONSTRAINED; UPDATING DEC Q ESTIMATES
Investment recommendation:

October/November U.S. carrier and global surveys indicated very strong iPhone 5s sales with improving levels of supply, steady iPhone 5c sales, and very strong initial sales of the new iPad Air. However, our global supply chain analysis and surveys post the iPad mini with retina display launch on November 12 indicated the new iPad mini is supply constrained and is expected to remain so throughout the December quarter. Given these trends, we anticipate a more favorable Dec Q iPhone/iPad mix for Apple towards the higher-ASP iPhone 5s and iPad Air versus iPhone 5c and iPad mini. For F2014/15, we believe a TD-LTE iPhone launch with the world’s largest carrier China Mobile could bolster March quarter sales and offset some of the post-holiday seasonal trends in western markets. We also believe the continued large share buyback program should contribute to a return to EPS growth in F2014/15. We reiterate our BUY rating and $580 PT.
Investment highlights
 Our Oct./Nov. surveys indicated strong iPhone 5s sales, as it was by far the top selling smartphone globally and at all four tier-1 U.S. carriers. Further, while the Gold iPhone 5s SKU was still supply constrained with long wait times, the other iPhone 5s SKUs showed marked improved availability versus last month. Please see our industry report published today, titled “Q3/13 handset market summary and Oct./Nov. survey: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates” for details. Given these trends, we slightly increase our Q4/F’14 iPhone unit estimates and ASPs from 51.5M/$620 to 52M/$624 due to stronger iPhone 5s sales versus the iPhone 5c.
 Our November surveys also indicated very strong initial iPad Air sales. However, our global supply chain analysis and surveys indicate the iPad mini with retina display, launched Nov. 12, is supply constrained and could remain so throughout Q1/F’14. Given these trends, we change our Q1/F’14 iPad/iPad mini unit estimates and blended iPad ASPs slightly from 12.8M/11.5M/$454 units to 13.5M/11.2M/$465.
 Primarily due to these changes, we raise our F2014 and F2015 EPS estimates from $42.75/$48.23 to $43.48/$48.78.
Valuation: Our $580 price target is based on shares trading at roughly 12x our F2015 EPS estimate

BlackBerry Hold ( only if you must)

BBRY : NASDAQ : US$6.52
BB : TSX
HOLD 
Target: US$6.00

COMPANY DESCRIPTION:
BlackBerry Ltd. is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the company provides solutions for access to information including email, messaging, Internet and intranet-based applications.

Technology — Communications Technology — Wireless Equipment
OCT./NOV. SURVEYS INDICATE CONTINUED WEAK SALES TRENDS; LOWERING ESTIMATES
Investment recommendation:

Following very disappointing August quarter results, our Oct./Nov. handset sales survey work indicated very weak sales trends with falling BlackBerry 10 prices and continued high levels of inventory. Following the unsuccessful funding of Fairfax Financial’s $9/share bid, we believe a sale of BlackBerry is no longer imminent and few – if any – candidates remain to purchase the company in its entirety. While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now longer public sale process under new management. Despite lowering estimates, we maintain our $6 price target based on our unchanged sum-of-parts analysis.
Investment highlights
 Given BlackBerry’s announced exit of the consumer smartphone market and increasing competition from ever-more-capable low-cost Android smartphones in emerging markets, our surveys indicated rapid BB7 share losses. In fact, we believe consumer BlackBerry sales are down more than 50% Y/Y. In addition, our surveys indicate continued soft BB10 enterprise sales, driven by upgrade delays from legacy BB7 enterprise customers given the uncertainty around BlackBerry’s future and increasing competition from BYOD devices, from Apple and Samsung in particular.
 Therefore, we are lowering our F2014 BlackBerry unit estimates from 19.7M to 19.0M, or down 33% Y/Y. In fact, as summarized in our global handset survey and Q3/13 global handset market report published today titled “Q3/13 handset market summary and Oct./Nov. surveys: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates”, we now estimate BlackBerry has only 1.4% smartphone market share, down from 4.2% in Q3/12 and from 15% in Q3/10.
 Despite BlackBerry’s significant restructuring to lower operating costs, our forward estimates remain below break-even levels. With our lower unit sales estimates, we are lowering our F2014 pro forma LPS estimate from $(0.82) to $(1.09) and our F2015 estimate from $(1.24) to $(1.28).
Valuation: Our $6 price target is based on our unchanged sum-of-parts valuation

Intel Corporation CANNIBALIZATION BY TABLETS CONTINUES

INTC : NASDAQ : US$22.86
HOLD 
Target: US$20.00

COMPANY DESCRIPTION:
Intel Corporation is the world’s largest semiconductor chip maker, in terms of revenue. The company develops advanced integrated digital technology platforms and components, primarily integrated circuits (ICs), targeted at the computing and communications industries.

Semiconductor Devices and Related Technologies
PCs TO END 2013 WITH A WHIMPER AS CANNIBALIZATION BY TABLETS CONTINUES
Investment recommendation
We are lowering our estimates for Intel and reiterate a HOLD rating based on weakness in the electronics supply chain that points to a steepening decline for PCs in 2013. Display suppliers, notebook ODMs and distributors all point to 2H weakness, especially for notebooks, whose units drive roughly two-thirds of the PC market. Notebook weakness stems from competition from iPad and other tablets, and with new launches from Apple and others, we expect the cannibalization trend to continue.
Strong iPad5 push to accelerate PC Cannibalization
We believe tablet refreshes by Apple and the proliferation of low cost tablets in China point to continuing and perhaps accelerating cannibalization of notebooks. We expect the PC market to decline by 10% in 2013 and another 4% in 2014. The iPad5 (launching mid-October) appears to be a true redesign with a thinner form factor and we note that build forecasts for this device have edged higher for Q3 and Q4. While changes to mix could be driving the forecasts higher, we believe a thinner design could serve to divert demand from higher end consumer notebooks. Meanwhile, at the low end of the price spectrum, the China white-box tablet market is seeing strong demand, growing from roughly 50 million units in 2012 to nearly 100 million in 2013. Most of these tablets are for the consumer market with prices ranging from $50-$100 USD.
Valuation
INTC’s price target of $20 is 11x our C2014 EPS estimate of $1.79 plus net cash of $0.83/share.

Blackberry HOLD ONLY If You Must

BBRY : NASDAQ : US$7.73
BB : TSX
HOLD 
Target: US$7.00

 

Technology — Communications Technology — Wireless Equipment
FILING REVEALS FURTHER CASH COMMITMENTS, ACCELERATING SERVICES ARPU DECLINE
Investment recommendation:

Following very disappointing August quarter results and the cancellation of its earnings call, BlackBerry recently released an updated 6-K filing containing increased operational details and updated management commentary. Material new details include the disclosure of steeper services ARPU declines versus our estimates when accounting for $25M in quarterly services revenue recognized from prior periods and a $300M increase in cash restructuring charge expectations over the next three quarters. Given BlackBerry’s net cash levels and services revenue stream represent two key pillars of our sum-of-parts valuation, we maintain our $7 price target, well below Fairfax’s outstanding $9 bid.

We maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, even despite planned deep cost cuts. Further, while we believe the most likely exit strategy for BlackBerry remains a sale to Fairfax Financial, we anticipate a lower revised bid post additional due diligence will be required to secure full institutional investor funding for Fairfax’s proposal.
Investment highlights
 Post very soft August quarter results and consistent with our continued survey work that indicates rapidly deteriorating BlackBerry market share with still further excess channel inventory, we have lowered forward handset and services revenue estimates materially. Please see our separate global handset survey report published today titled “September surveys indicate strong iPhone 5s demand, steady Samsung sales, and struggles for other OEMs” for further details.
 Further, despite deep cost cuts to lower operating expenses by 50% over the next three quarters, we maintain our belief BB10 products will not return BlackBerry to sustained profitability. In fact, we believe the BYOD threat to BlackBerry’s enterprise installed base could increase with the consumer franchise de-emphasized and the likely increased BB7 churn could accelerate the decline of services ARPU and company margins.
 We lower our F2014 pro forma LPS estimate from $(0.65) to $(0.82) and our F2015 estimate from ($1.07) to $(1.24).
Valuation: Our $7 price target is based on our updated sum-of-parts

Black Diamond

BDE

NASDAQ : US$10.45
BUY 
Target: US$13.50

COMPANY DESCRIPTION:

Un casque d'esclade black diamond.

Un casque d’esclade black diamond. (Photo credit: Wikipedia)


Black Diamond Inc. is a leading provider of outdoor recreation equipment and lifestyle products. BDE also develops, manufactures and distributes a broad range of products used for climbing, mountaineering, backpacking, skiing, and various other outdoor recreation activities under the Black Diamond and Gregory brands.

Investment recommendation
BDE reported EPS of -7c vs. our -4c estimate with the shortfall relative to our estimates coming from $2.5M less in sales and 70bps less of gross margin expansion as a cold/wet spring season resulted in spring cancellations. Weather volatility continues to make retailers more cautious with fall orders (a consistent theme across the industry) and thus are pushing the inventory risk onto vendors, BDE included. 2013 sales/margin guidance was lowered due to cancellations and FX pressures. Importantly BDE’s inventory is clean (+7% vs. sales +22%) and sets the stage for re-orders, when/if weather materializes. With apparel launching next month, POC’s new road line in 2014, and the integration of Gregory Japan and PIEPS going smoothly, the long term growth thesis is intact. As such, we reiterate our BUY.
Investment highlights
 Full-year guidance now calls for sales of $205-$210M from $216-$221M, and gross margin of 38.5%-40% from 40%-41%. Sales growth target of 20% in ’14 was unchanged, and given the many drivers coming into play over the next 18 months, looks conservative.
Gross margin trends remain favorable (+120bps in Q2), in spite of continued FX headwinds as POC, Gregory Japan, and apparel are expected to be gross margin accretive into 2014.
Valuation
Our $13.50 target is derived by our DCF analysis

AMP Hedge Fund : Great Day

Symbol   Last          Chg

PNE          1.08+0.08

DSX          10.32+0.18

FRO         2.26+0.12

DRYS     2.01+0.08

CKG        3.51+0.11

BTO        2.58+0.03

ORIG     17.46+0.005

AAPL      433.32+3.01

DGC             9.62+0.12

CPLP          9.88+0.2199

DCIX         4.53+0.03

Minimum Investment  $50,000

Return to date  30 %

 

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