Apple Inc.

AAPL Details
 
Stores Shut Down in China to Impact Sales:  Apple Inc. (NASDAQ: AAPL) is engaged in the manufacturing and distribution of mobile and personal computers. The business sells and provides digital content and applications through its digital content and services iTunes Store®, App Store®, Mac App Store, TV App Store, Book Store and Apple Music®.
 
Recent Updates:The Company reported that there will be a temporary drift of the iPhone supply as the manufacturing partner of the company is located outside the Hubei province. The business also guided that it will slowly ramping up its operational activities from that geography once the facilities will reopen. The company is closely monitoring the health of its suppliers and public health experts as this ramp up continues. The business expects a short-term impact on its revenue due to the shortage of supply of its product. The demand of iPhone across the China Region has been impacted and the stores of the company remained closed till further notice. Stores which are open have been running at lowered hours and at a negligible customer traffic. The company also informed that it will gradually reopening the retail stores and will continue in a safety manner. AAPL’s corporate offices and contact centers within the China are open, and the online stores have remained open throughout. The company has informed that, other than China, consumer demand across product and service categories has been strong to date and in-line with expectations.
 
Q1FY20 Operating Highlights for the Period ended 28 December 2019: AAPL declared its quarterly results, wherein the company reported total net sales of $91,819 million, up 9% on y-o-y basis on account of 37% contribution from wearables, home and accessories segment. The service segment registered a growth of 17% on pcp terms. Total gross margin stood at $35,217 million, as compared to $32,031 million Q1FY19, aided by a favorable service mix and higher leverage, partially offset by higher Services costs. Research and development expense stood higher at $4,451 million as compared to $3,902 million in pcp, representing 5% of the total operating income. Total operating expenses stood at $9,648 million, representing 11% of the total operating income. Net income came in at $22,236 million, improved from $19,965 million in Q1FY19.

Q1FY19 Income Statement Highlights (Source: Company Reports)
Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of AAPL is trading at $324.95 with a market capitalisation of $1.42 trillion. The stock is trading at the upper band of its 52-week trading range of $169.49 to $327.85. The company is fundamentally strong and has delivered strong results in the recent past. The company believes that the ongoing situation is temporary in nature while the business emphasizes on the health and safety of the partners and its employees.Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like Motorola Solutions Inc (NYSE: MSI), Microsoft Corp (NASDAQ: MSFT), Cisco Systems Inc (NASDAQ: CSCO), etc., and arrived at a target price of single-digit downside (in % terms). Hence, we recommend a “Sell” recommendation on the stock at the current market price of $324.95 per share, up 0.02% on 14^th February 2020. 


AAPL Daily Technical Chart (Source: Thomson Reuters)

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