Apple Inc.

AAPL Details

Apple Inc. (NASDAQ: AAPL) is one of the leading players in mobile communication & media devices, and PC (personal computers). The company offers a wide range of software & services, accessories and third-party digital content and applications. The company is well known for its product portfolio, which includes iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, HomePod.Apart from this, AAPL’s software applications include macOS, iOS, iCloud, watchOS and tvOS operating systems, Apple Pay, etc.

Recent Developments: AAPL recently, inked an agreement with Intel to acquire the majority of Intel’s smartphone modem business for the transaction value of $1 billionand the deal is likely to be completed in the fourth quarter of 2019, subject to approvals and conditions. The development will bring in ~2,200 Intel headcounts to AAPL, along with intellectual property, equipment and leases. The agreement will lead Apple to focus more on developing 5G technology to align with the need of a global customer base.

3QFY19 Results Highlights: AAPLreported 3QFY19 results beating the services revenue touching a new all-time high. Revenue stood at $53.8 billion, posting a growth of 1% from the corresponding period last year. Basic and diluted EPS (earnings per share) came in at $2.20 and $2.18, respectively, for the quarter.  


Condensed Consolidated Statements of Operations (Source: Company Reports)

Product and Services performance: Looking at the product & services’ contribution mix, iPhone was the main contributor toward revenue and accounted for 48%, during the quarter. Whereas, Mac, iPad, and Wearables, Home & Accessories denoted ~11%, ~9% and ~10% of the top-line, respectively. Services accounted for ~21% of the total revenue during the quarter.

The company proved to be a decent performer in June quarter on account of an all-time record revenue from Services segment. However, net sales for iPhone declined in the quarter amid lower iPhone unit sales. Mac posted a growth of 11% in net sales due to higher sales of MacBook Air®. Further, iPad Pro®, and AirPods & Apple Watch supported the top-line growth for iPad and Wearables, Home and Accessories, respectively.


3Q Net sales by category (Source: Company Reports)

Segment Operating Performance: The Company manages its business primarily on a geographic basis with reportable segments - Americas, Europe, Greater China, Japan, and Rest of Asia Pacific.Healthy performance was seen across the segments with Americas growing at 2% during the quarter. The Management expects the remaining CY 2019 to be an exciting period owing to the launch of various new services and products.
 
During the quarter, net sales in the Americas witnessed a growth of 2% due to higher growth in Wearables, Home and Accessories and Services. Europe and Greater China net sales growth were negative due to lower iPhone net sales, partially offset by higher net sales of Wearables, Home and Accessories and Services. Japan and Rest of Asia Pacific achieved decent growth at 6% and 13% year-over-year, respectively, for the quarter.

Net sales by reportable segment (Source: Company Reports)
 
Products Gross Margin for 3QFY19 declined to 30.4% from 32.8%in 3QFY18, mainly driven by the weakness of foreign currencies relative to the U.S. dollar. Contrary to this, Services Gross Margin increased to 64.1% in 3QFY19 from 61.8%in 3QFY18 due to higher net sales of services.


Gross Margin (Source: Company Reports)
 
The results expressed a year-over-year improvement in terms of business performance in comparison with the March quarter.

Share Repurchase Program: The company on April 30, 2019, updated that it has increased the current share repurchase program authorization from $100 billion to $175 billion, out of which, $78.2 billion had been utilized as of June 29, 2019.

4QFY19 Guidance: AAPL projects revenue for the fourth quarter of FY19 to be in the range of $61 billion to $64 billion. Gross margin for the period is anticipated to be in the range of 37.5% to 38.5%. Other income is likely to come in at $200 million and operating expenses are targeted to be between $8.7 billion and $8.8 billion during the fourth quarter of FY19. Tax rate is projected to be at ~16.5%.

Stock Recommendation: At the current market price of $213.04, the stock is trading at a price to earnings multiple of 18.16x with a current yield of 1.48% and an annualized dividend of $3.08 and beta of 1.02x. Currently, the stock is trending towards the higher end of its 52-week high & low range of $233.47 - $142. Considering the strong performance in 3QFY19 backed by Mac, iPad and services, excellent product portfolio, Wearable, Home and Accessories as a major stand out, decent guidance for 4QFY19, etc., we recommend a “Hold” rating on the stock at the current price of $213.04, up 2.04% as on 31 July 2019.
 
AAPL Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.