Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Apple: This Technology Stock Still Has its Mojo

Thursday, April 26th, 2012
By for Profit Confidential

AppleSteve Jobs would be quite pleased if he were still alive. Apple Inc. (NASDAQ/AAPL), which has been on a steady downward move, down 13.28% since trading at $644.00 on April 10, surged over seven percent on Tuesday following a blow out fiscal second quarter.

The report showed why Apple continues to be the leader amongst technology stocks in the world deserving of its market cap of over half a trillion dollars. Want to know what are some of my favorite luxury stocks? Read Retail Sector Stars: Luxury Stocks Are in Vogue.

Apple recorded quarterly revenues of $39.2 billion, a big increase from the $24.7 billion reported in the comparative quarter last year, and above the consensus estimate of $36.81 billion. International sales drove 64% of the total revenues and, with the company’s targeted expansion in China, India, and other emerging companies, the growth should continue.

Quarterly earnings came in at $11.6 billion, or $12.30 per diluted share, nearly double the $6.0 billion, or $6.40 per diluted share, for the comparative quarter, and better than the consensus estimate calling for $10.06 per diluted share.

What was also impressive was the gross margin expansion to 47.4%, compared to 41.4% in the year earlier quarter.

Driving the revenues was the sale of 35.1 million “iPhones,” up 88% year-over-year, and well above the estimate of 30.5 million units and the whisper of 32 million units.

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A slight disappointment in all of this was a shortfall in “iPad” sales of 11.8 million units, below the 13-million unit estimate and whisper number. The plus was that the unit sales were 151% higher year-over-year, so I don’t see a major issue developing here.

I’m somewhat concerned about Apple’s guidance of $34.0 billion in revenues and $8.68 per diluted share in the fiscal third quarter, which is below the consensus $9.93 per diluted share on revenues of $37.4 billion expected by 43 analysts.

Apple is presently trading at 10.97X its fiscal 2013 earnings per share estimate of $51.07 per share and a price/earnings to growth (PEG) ratio of 0.66 based on an estimated average five-year earnings growth rate of 19.52%. A PEG below 1.0 means that Apple’s price-to-earnings multiple assigned by the market is trading below its estimated five-year growth rate, which means an undervalued situation.

The key for Apple as the company moves forward will be to make sure its products continue to evolve and stay ahead of the competition.

Increasing the company’s exposure in Asia and other emerging markets will also be a key for Apple. To gain traction in the emerging countries, the company is planning to offer a lower-priced iPhone that may be the “iPhone 4” once the “iPhone 5” debuts later this year.

The reality is that the iPhone is arguably the most sought-after smartphone on the planet at this time. The “Samsung Galaxy” is good, but cannot gain any traction against Apple. And, as for the “BlackBerry” by Research In Motion Limited (NASDAQ/RIMM), the company is in trouble.

For now, Apple remains the “best of breed” and this will continue until someone can knock the company off its perch.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles

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