Apr 30, 2013 Question of the Week

by Richardson GMP

So Apple finally released results, how did the company do and did we learn anything new?

 

By RM Group of Richardson GMP
 

  In what seemed to be the most anxiously awaited earnings release of the season, Apple stepped up and reported fiscal Q2 earnings that beat expectations.  However, the street cared little about the past quarters’ results and focused on other information in the release.  If we had to identify the good, the bad, and the ugly for Apple’s earnings we would start off by mentioning the company is returning a "good” amount of value to shareholders. It’s no secret Apple has had an incredible amount of cash on its balance sheet for some time and investors wanted to know what management was going to do with it. Management responded on Tuesday night by announcing it would return $100 billion to shareholders with US$60 billion in share buybacks through 2015 and US$40 billion in dividends. The quarterly dividend was raised 15% to US$3.05, which gives the stock a yield close to 3.0%. The "bad” from the announcement was that investors did not gain any insight into future product releases, but to be honest we weren’t expecting Apple to reveal any secrets.

   Regardless, this quarter has left investors asking "what’s next”? There are a number of product launches expected in the second half of the year, so investors will have to be patient again to find out what’s in the product development pipeline. The "ugly” from last Tuesday had to be the company’s guidance for the current quarter which was well below what analysts were expecting. Admittedly we heard that consensus estimates were way too high going into the results, so perhaps this was not surprising, but the numbers were ugly nonetheless. In other words, things will get worse before they get better. So did the investment community like the results? We think Wall Street was mixed on its opinions.  On one hand the strategy of the company was not clarified to a great extent; however, the return of value to shareholders did manage to lift the stock during the rest of the week even though it still remains below the level it was at last week. We think it would be fair to say that this quarter’s results only emphasize that we are seeing a transition of the company’s shareholder base from one that was growth oriented to another which is likely more focused on value and income. Such transitions do take time, so Apple investors will have to be patient for the remainder of the year. That’s not to say that the company is in significant trouble; however, now that Apple has grown to such a massive size, it has become much more difficult to grow rapidly. As such, our U.S. research partners at Credit Suisse lowered their target price this week to US$525, but still rate the stock an Outperform.

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Source: Richardson GMP Limited
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited. 

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