Saturday, October 27, 2012

Apple Update: Q4 Earnings Report

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Apple reported Q4 2012 earnings Thursday with revenue of $36 billion was right on target, but EPS of $8.76 was lower than the expected $8.81 (although Apple’s own guidance was for EPS of $7.65). Also worrying investors was Apple’s forecast for the next quarter: EPS of $11.75 on revenue of $52 billion, both also lower than had been expected.

The stock peaked at $700 last September and had declined $70 already prior to earnings. Then Friday came within a few points of testing it's 200 day moving average.

Investors are getting worried with two consecutive quarterly misses. Why the slipping profit margins, and why the lower-than-expected revenue in the next quarter despite a slew of new products? Is demand waning for iPhones, iPads and Macs?

For Apple it's not a 'demand' issue but instead a supply problem, which most companies wish they had! Actually, that huge array of new products announced and/or released this quarter is a primary reason behind the slipping numbers. During the earnings call, Tim Cook stated that this has been Apple’s most prolific quarter ever in terms of new product releases. Key Apple gear went on sale in Q4, including the highly anticipated iPhone 5, a collection of new iPods and a class-leading Retina display 15-inch MacBook Pro. As the quarter wrapped up, Apple announced the iPad Mini, another Retina MacBook Pro, a new full-size iPad, an updated Mac Mini and a redesigned iMac that pushes the envelope for a consumer-level desktop PC.

All of these new products entail ramp-up costs, and Apple’s continued focus on cutting-edge design appears to be leading to higher production costs, regardless of any favorable supply and manufacturing terms Apple may have negotiated. Even though the latest round of new products may not go on sale until the next quarter, in most cases Apple has been producing them through Q3, building up a sufficient quantity to meet launch demand.

As the company approaches the final two months of the year, the oldest product for sale in Apple’s mobile lineup will be the 15-inch MacBook Pro with Retina display, which has been on the market for a mere four months. Apple is also selling an iPhone 5 and iPod Touch and nano that are just one month old, and November and December will bring a brand new iPad, iPad mini, iMac and Retina 13-inch MacBook Pro. It’s probably the biggest single product turnover Apple has ever done in such a short amount of time.

Apple is stressing that accepting lower margins and being behind on production is only temporary and that it plans to get its costs down as soon as possible.

ITZ believes Tim Cook has set a low bar on Apple's upcoming quarter as well as the year ahead. They've mastered the art of sandbagging earnings estimates. What Apple is setting up instead is perhaps record sales and revenues, as shoppers find an array of new products to buy and upgrade. While at the same time Apple will see supply issues and cost diminish.

Three weeks ago ITZ gave a pre-earnings outlook LINK bringing down FY 2012 to $44.38, it actually ended up being $44.15. ITZ also called for a test of the 100 ma around $617...we saw a low yesterday of $592 close to it's 200 ma. But rallying and briefly up on the day before closing at $604.

ITZ maintains FY 2013 estimate eps of $57 & revenue of $220B for 2014 $64 eps & revenue of $240B. Let's not forget as noted in the last Apple post... it has $125 per share in cash and with the stock trading around $600 it is selling at 8.4xs ex-cash next years estimated earnings. ITZ maintains a 2013 price target of $850 or 15xs eps. Use this correction to BUY!

Apple Forecasts $52 Billion For Holiday Sales


itzstockchartz said...

ITZ suggests those who haven't bought or entered AAPL to back up the truck here. Disclousure* ITZ has entered April $650 call options for $21.60

itzstockchartz said...

Set Stop on calls $22

itzstockchartz said...

Stoppe dout of calls $22 -21.60 +0.40

itzstockchartz said...

Entered 1/2 position on the $650 call options @ $19.50 after being stopped out Monday @ $22

itzstockchartz said...

FYI Apple June '10 high to Aug '10 low -15.6% but from low to Feb '11 high +50%.
From Feb '11 high- June '11 low -12% followed by Oct '11 high +37%
Oct '11 high to Nov '11 low -15% then to April '12 high +77%!
Again, april '12 highs to May '12 low -17.6% followed by Sept '12 high +33.5%
Currently Sept '12 high of $702, today's low $556 -20.8%
Valuation? Selling close to 8xs ex cash on 2013 earnings...

itzstockchartz said...

added 1/4 position April $650 calls $15.50, now 3/4 position avg cost $18.17

itzstockchartz said...

Added final 1/4 position to April calls @ $13

itzstockchartz said...
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itzstockchartz said...

RECAP: April $650 calls ---
entered full position on Nov 4th @ $21.60 then stopped out Monday 5th @ $22 = +$0.40

The On Nov 7th entered 1/2 position $19.50
Nov 8th 1/4 position added $15.50
Nov 9th added last 1/4 position @ $13
Average coast basis $16.88
If Apple breaks below $524 exit position

itzstockchartz said...

Suggest STOP on calls $16.00

itzstockchartz said...

Stopped out $16.00 for $0.88 loss on full position off setting $0.40 last week