Thursday, January 24, 2013

What To Do With Apple In Here?

Apple is getting hit hard today, off nearly -12%, after reporting earnings last night.

The poor performance of the stock is in some ways ironic in light of business results that most companies would envy.  Here's what the New York Times reported this morning:

Apple on Wednesday reported the kind of quarter most big companies would envy, posting a profit of $13.1 billion and selling 28 percent more iPhones and 48 percent more iPads, its two biggest products...

Apple’s net income for its fiscal first quarter ending Dec. 29 was $13.1 billion, or $13.81 a share, flat compared with $13.1 billion, or $13.87 a share, in the same period a year earlier. Revenue was $54.5 billion, up from $46.33 billion a year ago. Those results compared to the average estimates of $13.44 a share earnings and revenue of $54.73 billion from analysts surveyed by Thomson Reuters. 

The blogs and financial press are full of news reports about the company, so I will not try to repeat all of the different news items and analysis that is available.

However, I would note that Apple today is a company that is now trading at 9x price/earnings, and pays a 2.3% dividend yield.  It is a cash flow machine, and now sits on $137 billion of cash.  While its financial results last night were obviously disappointing to the market, it gained market share in smartphones last quarter, and still recorded revenues that were +17% higher than the same quarter a year ago.

That said, it remains (for now, at least) the largest company in the S&P 500.  The law of large numbers would suggest that the company's growth rate will slow.  Moreover, while CEO Tim Cook suggested yesterday that their new product pipeline is robust, so sales may yet increase again later this year, but it is not clear that the company has any "game changers" in mind.

Here's my two cents:  sometimes the market may be right.  Yes, Apple can pull some levers to get its stock price higher (stock repurchase, higher dividend, etc.) but management has never been particularly interested in Wall Street (Steve Jobs was famously hostile to Street analysts).

Apple remains a tough call.