|
Related Topics
|
Category: Stock Market and Apple (APPL)
Date: 31 July 2020 Stock Price of Apple: $384.76 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Apple, the maker of the iPad, Macbook and the iPhone. The group's 3rd quarter 2020 earnings beat Wall Street expectations and Apple (APPL) stock surged to a new all time high in after-hours trade. But is APPL stock overvalued?
|
Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments -Tim Cook, Apple’s CEO."
About Apple
Apple is one of the worlds biggest smart phone and related accessories makers with the group manufacturing the iPhone, iPad, Macbook (laptops for those that don't know), Apple Watch and other related products and services. The group is starting to focus more and more on their services offering such as cloud services for their device users and services such as iTunes.
Overview of Apple's 3rd quarter 2020 earnings results
Numbers we are interested in: (for the quarter)
Apple sales by product type and category for the 3rd quarter of 2020:
So in summary Apple iPhone sales was relatively flat while Mac and iPad sales surged significantly, probably due to Covid-19 and people working from home. Wearables, Home and Accessories continues to grow strongly with sales being up over 16.7% compared to a year ago. And services increased by almost 15% and is now comfortably the second biggest revenue generator for Apple after the iPhone.
- Sales of Products $46.529 billion (down from $42.354 billion for the same quarter of the previous year)
- Sales of Products increased by 9.8% over the last 12 months
- Sales of Services $13.156 billion (up from $11.455 billion for the same quarter of the previous year)
- Sales of Services increased by 14.8% over the last 12 months
- Total cost of sales: $37.005 billion (up from $33.582 billion for the same quarter of the previous year)
- Total cost of sales increased by 10.2% over the last 12 months
- Margins remained pretty constant as sales and cost of sales grew at very similar rates
- Operating income: $13.091 (up from $11.544 billion for the same quarter of the previous year)
- Net income $11.253 billion (up from $10.044 billion for the same quarter of the previous year)
- Diluted earnings per share: $2.58 (up from $2.18 for the same quarter of the previous year)
- PE ratio of Apple: 28.2
- Dividend declared: $0.82
- Dividend yield: 0.9%
- Number of shares in issue: 4.354 billion (down from 4.601 billion for the same period of the previous year)
- Cash and cash equivalents: $33.383 billion
- Cash and cash equivalents per share: $7.67
- Cash and cash equivalents makes up 1.9% of Apple's market capital
- Cash and cash equivalents makes up 10.5% of Apple's total assets
- Accounts receivable, net: $17.883 billion
- Accounts receivable makes up 5.6% of Apple's total assets
- Inventories: $3.978 billion
- Inventories makes up 1.25% of Apple's total assets
- Total stockholders equity in Apple: $72.282 billion
- Stockholders equity per share in Apple: $16.60
- Apple is trading at 23.2 times its stockholders equity per share which is well outside the expected range of between 2 and 4 times that most firms tend to trade at. This ratio should raise alarm bells for investors and does point to how inflated APPL's stock price is.
- For some perspective the average price to book value of firms in the S&P 500 is 3.7.
- Cash generated from operations (for the 3 quarters of fiscal 2020): $60.098 billion
- Cash generated from operations per share (for the 3 quarters of fiscal 2020): $13.80
Apple sales by product type and category for the 3rd quarter of 2020:
- iPhone $26.418 billon (up 1.6% from $25.986 billion for the same quarter of the previous year)
- Mac: $7.079 billion (up 21.6% from $5.820 billion for the same quarter of the previous year)
- iPad: $6.582 billion (up 31% from $5.023 billion for the same quarter of the previous year)
- Wearables, Home and Accessories: $6.450 billion (up 16.7% from $5.525 billion for the same quarter of the previous year)
- Services: $13.156 billion (up 14.8% from $11.455 billion for the same quarter of the previous year)
So in summary Apple iPhone sales was relatively flat while Mac and iPad sales surged significantly, probably due to Covid-19 and people working from home. Wearables, Home and Accessories continues to grow strongly with sales being up over 16.7% compared to a year ago. And services increased by almost 15% and is now comfortably the second biggest revenue generator for Apple after the iPhone.
Apple (AAPL) management commentary on their 3rd quarter 2020 earnings
Cupertino, California — July 30, 2020 — Apple today announced financial results for its fiscal 2020 third quarter ended June 27, 2020. The Company posted quarterly revenue of $59.7 billion, an increase of 11 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.58, up 18 percent. International sales accounted for 60 percent of the quarter’s revenue.
“Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments,” said Tim Cook, Apple’s CEO. “In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation. This is a challenging moment for our communities, and, from Apple’s new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we’re living the principle that what we make and do should create opportunity and leave the world better than we found it.”
“Apple’s record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments,” said Tim Cook, Apple’s CEO. “In uncertain times, this performance is a testament to the important role our products play in our customers’ lives and to Apple’s relentless innovation. This is a challenging moment for our communities, and, from Apple’s new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we’re living the principle that what we make and do should create opportunity and leave the world better than we found it.”
“Our June quarter performance was strong evidence of Apple’s ability to innovate and execute during challenging times,” said Luca Maestri, Apple’s CFO. “The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18 percent and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics.”
Apple’s Board of Directors has declared a cash dividend of $0.82 per share of the Company’s common stock. The dividend is payable on August 13, 2020 to shareholders of record as of the close of business on August 10, 2020.
The Board of Directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
Apple’s Board of Directors has declared a cash dividend of $0.82 per share of the Company’s common stock. The dividend is payable on August 13, 2020 to shareholders of record as of the close of business on August 10, 2020.
The Board of Directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020.
Apple (NYSE:AAPL) stock price history
The image below obtained from Google, shows the stock price history of Apple (NASDAQ: APPL) for the last 5 years. And its been a very good time for Apple shareholders. 5 years ago the stock of Apple was trading at around $129 a stock and its currently trading at $293.80 a stock. That's a very healthy 217% return provided to Apple stockholders over the last 5 years.
The stock of Apple is trading at a lot closer to its 52 week high of $327.85 than it is to its 52 week low of $170.27 a stock, which to us is a clear indication that the short term sentiment and momentum of Apple stock is very positive at this point in time,
The stock of Apple is trading at a lot closer to its 52 week high of $327.85 than it is to its 52 week low of $170.27 a stock, which to us is a clear indication that the short term sentiment and momentum of Apple stock is very positive at this point in time,
Apple (APPL) stock vs Microsoft (MSFT) stock performance over the last 5 years
So you might be wondering why we are comparing the stock performance of Apple (APPL) to that of Microsoft (MSFT). Well both are seen as tech giants, both are listed on the Nasdaq and they have very similar market capitals with Apple's market cap sitting at $1.67 trillion compared to Microsoft's $1.54 trillion. Below the stock price returns provided by each over the last 5 years:
So Microsoft's stock price has easily outperformed that of market favourite, Apple over the last 5 years.
- Apple (APPL): 217%
- Microsoft (MSFT): 377.41%
So Microsoft's stock price has easily outperformed that of market favourite, Apple over the last 5 years.
Recent news coverage of Apple
The extract below discusses Apple's latest results and the fact that APPL sock is trading at all time high in after-hours trade as obtained from Fortune.com
Apple had a much better quarter than Wall Street anticipated, as consumers proved resilient despite the COVID-19 pandemic. Apple's stock jumped 6% in after-hours trading to over $400, which would be an all-time high if it holds up. Apple's revenue increased 11% to $59.7 billion for the three months ended June 30, the company's fiscal third quarter of 2020. Analysts had expected revenue to drop 2% to $52.6 billion on average. And earnings per share of $2.58, up 18%, crushed the average forecast of $2.07.
The after-hours stock price jump held even after Apple CFO Luca Maestri disclosed on a call with analysts that this year's new iPhones would likely be delayed "a few weeks" due to challenges in the supply chain. The surprise growth, including in iPhone sales, came as the U.S. smartphone market contracted 25% overall in the last quarter, according to research firm Counterpoint. But in many parts of the world, consumer shopping has improved since the worst of the shutdowns in the early spring. And Apple has a robust e-commerce operation selling phones online.
"We're conscious of the fact that these results stand in stark relief during a time of real economic adversity," Apple CEO Tim Cook said on a call with analysts. "We do not have a zero sum approach to prosperity and especially in times like this we're focused on growing the pie, making sure our success isn't just our success."
Apple has expanded some of its offerings, through services such as Apple TV+ and Apple News, which bring in monthly subscription fee revenue that can be steadier than those from device sales. Services revenue jumped 15% to $13.2 billion. Apple also met its 2016 goal to double its annual service revenue within four years. The rally to an all-time high stock price came after Apple shares closed at $384.76 on Thursday with a gain of 31% this year. Rival Dell has gained 15% in 2020 and Hewlett Packard's stock is off 16%. The S&P 500 Index is up just 1% on the year. Apple also said it would split its stock four to one, which would lower the entry price for investors but would have no financial impact.
The prior big gain in 2020 had prompted Goldman analyst Rod Hall last week to call the rally in Apple's stock price "unsustainable," while recommending that investors avoid the stock. He predicted the price would drop $299 in a year. The next big challenge ahead for Apple is the debut of the 2020 upgrades of the iPhone. The iPhone 12 is rumored to include as many as four different size models, all with 5G capabilities. Apple did not offer a forecast of its next quarter's results.
Read the full article here
Apple had a much better quarter than Wall Street anticipated, as consumers proved resilient despite the COVID-19 pandemic. Apple's stock jumped 6% in after-hours trading to over $400, which would be an all-time high if it holds up. Apple's revenue increased 11% to $59.7 billion for the three months ended June 30, the company's fiscal third quarter of 2020. Analysts had expected revenue to drop 2% to $52.6 billion on average. And earnings per share of $2.58, up 18%, crushed the average forecast of $2.07.
The after-hours stock price jump held even after Apple CFO Luca Maestri disclosed on a call with analysts that this year's new iPhones would likely be delayed "a few weeks" due to challenges in the supply chain. The surprise growth, including in iPhone sales, came as the U.S. smartphone market contracted 25% overall in the last quarter, according to research firm Counterpoint. But in many parts of the world, consumer shopping has improved since the worst of the shutdowns in the early spring. And Apple has a robust e-commerce operation selling phones online.
"We're conscious of the fact that these results stand in stark relief during a time of real economic adversity," Apple CEO Tim Cook said on a call with analysts. "We do not have a zero sum approach to prosperity and especially in times like this we're focused on growing the pie, making sure our success isn't just our success."
Apple has expanded some of its offerings, through services such as Apple TV+ and Apple News, which bring in monthly subscription fee revenue that can be steadier than those from device sales. Services revenue jumped 15% to $13.2 billion. Apple also met its 2016 goal to double its annual service revenue within four years. The rally to an all-time high stock price came after Apple shares closed at $384.76 on Thursday with a gain of 31% this year. Rival Dell has gained 15% in 2020 and Hewlett Packard's stock is off 16%. The S&P 500 Index is up just 1% on the year. Apple also said it would split its stock four to one, which would lower the entry price for investors but would have no financial impact.
The prior big gain in 2020 had prompted Goldman analyst Rod Hall last week to call the rally in Apple's stock price "unsustainable," while recommending that investors avoid the stock. He predicted the price would drop $299 in a year. The next big challenge ahead for Apple is the debut of the 2020 upgrades of the iPhone. The iPhone 12 is rumored to include as many as four different size models, all with 5G capabilities. Apple did not offer a forecast of its next quarter's results.
Read the full article here
Apple (NASDAQ:AAPL) stock valuation
So what do we value Apple's stock at after the release of their 3rd quarter 2020 earnings report? Following Apple's 3rd quarter 2020 earnings report our valuation model provides a target price (full value price) for Apple at $247.90 a stock (up slightly from our 2nd quarter 2019 earnings report valuation of Apple). We therefore believe that the stock of Apple is overvalued.
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $247.90. Therefore we believe a good entry point into Apple stock is at $223.10 or below. We expect the stock of Apple to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is significantly overvalued at this point in time.
Since the stock of Apple is trading at well above our target (full value) price and our suggested entry price we will go against almost all market commentators and punters and rate Apple as a sell
We usually suggest that long term and fundamental investors get in at least 10% below our target (full value) price which in this case is $247.90. Therefore we believe a good entry point into Apple stock is at $223.10 or below. We expect the stock of Apple to pull back from current levels to levels closer to our target price (full value price) in coming weeks and moths as we believe it is significantly overvalued at this point in time.
Since the stock of Apple is trading at well above our target (full value) price and our suggested entry price we will go against almost all market commentators and punters and rate Apple as a sell
Next earnings release of Apple
It is expected that Apple will publish their Q4 and full fiscal 2020 earnings report in late October 2020