Apple Inc.

Apple Inc. (NASDAQ: AAPL) offers innovative personal products like iPhone, iPad, Mac, Apple Watch, and Apple TV. The company derives the majority of its revenue from the Americas and Europe.

Key Highlights:

• Robust Margin: in 9MFY21, the company reported a higher total gross margin (41.7% v/s 38.3% in pcp), supported by improved product mix. Notably, the company derives a significant portion of its income from the Americas, Europe, Greater China etc., while a weaker US Dollar has contributed to the company’s topline. Moreover, the company’s total operating expenses as a percentage of total sales declined to 12% in 9MFY21, from 14% a year ago. This is impressive and indicates higher operational efficiency. Notably, the company’s EBITDA and net margin stood at 33.1% and 26,7%, respectively, significantly higher than the industry median of 12.2% and 4.7%, respectively.
• Tremendous Surge in cash flows: The company reported higher cash from operations at USD 83,838 million in 9MFY21, as compared to USD 60,098 million a year ago. The growth was supported by higher net income (USD 74,129 million in 9MFY21 v/s USD 44,738 million in pcp). The increase in cash flow from operations, amidst the current economic turmoil denotes robust product demand and prudent expense management.

Q3FY21 Financial Highlights:

• AAPL announced its third-quarter result, wherein the company posted total net sales of USD 81,434 million, jumped from USD 59,685 million in the previous corresponding period (pcp). The growth was driven by strong momentum from iPhone, Wearables, Home & Accessories and Services segments.
• Gross margin surged to USD 35,255 million from USD 22,680 million in the previous corresponding period (pcp). The increase was primarily due to higher Products volume, improved Products mix, coupled with the positive impact from weak U.S. dollar.
• Total operating expenses remained higher at USD 11,129 million, as compared to USD 9,589 million in pcp. The increase was driven by higher research and development costs coupled with higher selling, general and administrative expenses.
• Net income climbed to USD 21,744 million, from USD 11,253 million in Q3FY20, due to the above-mentioned reasons, partially offset by higher provision for income taxes (USD 2,625 million v/s USD 1,884 million in pcp.

Source: Company Report

Risks: The company derives its revenue from different regions like Europe, Asia etc., hence, a volatility in the FX rate would impact the company’s topline. Moreover, the group sourced its raw materials from different regions, and a rise in the raw material prices would impact the company’s margin.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The Company has a worldwide presence and has a commanding market share within premium smartphones, personal computers, tablets and other electronic devices. With its strong R&D and technology, the company offers innovative products to its customers and reported a double-digit growth from Europe and Asia. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a single-digit upside side potential (in % terms). For the said purpose, we have considered peers like Microsoft Corp, Motorola Solutions Inc, Amazon.com Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of USD 145.52 on August 02, 2021.

One-Year Technical Price Chart (as on August 02, 2021). Source: Kalkine, Analysis by Kalkine Group

Romeo Power Inc.

Romeo Power Inc. (NYSE: RMO), formerly RMG Acquisition Corp., is an energy technology company. The Company delivers large-scale electrification solutions for commercial applications.

Key Highlights:

• Prices are hovering in a steeply bearish trend, with stock traded well below the support levels of 200-day, 50-day, 30-day, 20-day, 10-day, and 5-day SMAs.
• The leading momentum indicator is signaling that stock is in bearish zone, with RSI struggling near 40.

 Source: REFINITIV, Analysis by Kalkine Group

• The company reported negative gross margin, EBITDA margin and Operating margin in the March quarter of 2021.
• Company is expected to report poor financials in June quarter as well.
• Recently, on June 28 Lifshitz Law Firm, P.C. announces that a class action complaint was filed against RMO alleging that RMO was suffering from an acute shortage of high quality battery cells, which are key raw materials for RMO’s battery packs and modules, due to supply constraints.

Conclusion: Company has poor financials and technical indicators are also indicating weakness in the prices. Moreover, a class action complaint is filed against the company. Hence, based on the above facts, we recommend an “Avoid” recommendation on the stock at the closing price of USD 6.99 on August 2, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

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