May 28, 2014
Apple Inc.
NASD: AAPL - Computer Processing Hardware
Grade
86.5
Earnings
Last Earnings Release
Last Qtr. Actual vs. Est.
Quick Facts
04/24/2014 Dividend Yield
1.99%
$11.62 / $10.18 52 Wk High
$614.13
Next Release 07/22/2014
$8.52 52 Wk Low
$393.78
Year Ending 09/30/2014
$43.97 Short Interest
Year Ending 09/30/2015
$47.54 Market Cap
2% of float
$614.1
05/23/2014
$529B
Overview
Company Scores Remarkable Fundamental Grades
MarketGrader currently has a BUY rating on Apple Inc.
(AAPL), based on a final overall grade of 86.5 scored by
the company's fundamental analysis. Apple Inc. scores
at the 100th percentile among all 5962 North American
equities currently followed by MarketGrader.
Our
present rating dates to September 25, 2003, when
MarketGrader initiated coverage on the stock. With an
overall grade of 86.5, Apple Inc. is the highest graded
company in the Computer Processing Hardware subindustry, followed by NCR Corporation (NCR), with an
overall grade of 61.5. The stock, up 10.44% in the last
six months, has outperformed both the Computer
Processing Hardware group, up 0.54% and the S&P
500 Index, which has returned 5.25% in the same
period. Please go to pages two and three of this report
for a complete breakdown of AAPL's fundamental
analysis.
Price, Rating and Sentiment History - 2 Years
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1
May 28, 2014
Apple Inc.
NASD: AAPL - Computer Processing Hardware
Growth
B+
The Company's Recent Reports Reflect Solid Top and Bottom Line
Growth
Apple's very strong long terms sales growth seems to have virtually
ground to a halt during its latest quarter. The $45.53 billion in revenue
reported by the company last quarter represents just 4.04% growth from
the $43.76 billion it sold during the same quarter a year earlier. However,
when looking at the longer term picture is is clear the company's sales
growth has been remarkable for a while. Apple booked $175.52 billion in
12-month trailing revenue up to--and including--last quarter, 100.36%
higher than what it sold in the equivalent period ended three years ago, a
very impressive increase. Therefore it seems that the company's
business deteriorated very rapidly most recently, stalling its otherwise
impressive growth record. The next couple of quarters will be very
important in determining if this marks a temporary slowdown as its 12-month trailing sales total calculation will
substitute earlier periods of strong growth with more recent lower sales figures. In its latest announcement it also
posted healthy profit gains both on a year-to-year basis and over a three year period when comparing full year
results, using four rolling quarters of net income for the latter comparison. It posted a First quarter profit increase
of 7.08% to $10.22 billion from $9.55 billion (excluding extraordinary items) a year earlier, compared to a 92.85%
full year profit increase to $37.71 billion in the 12 months ended last quarter from $19.55 billion three years
earlier. The company's margins have been shrinking steadily during the last three quarters, albeit at a slower rate
during the latest period. Its EBITDA, operating and net margins fell on average by 7.26% in the latest quarter
versus the year ago period.
Market Growth LT
Market Growth ST
EPS Growth
Growth Potential
Earnings Momentum
Earnings Surprise
86.5
AB+
A+
C
A
B-
Revenue Qtrly. 03/31/2014
Revenue Qtrly. Year Ago
Revenue 1 Yr. Chg.
Revenue 12 Mo. Tr. Latest
Revenue 12 Mo. Tr. 3Y Ago
Revenue 12 Mo. Tr. 3Y Chg.
$45.5B
$43.8B
4.04%
$175.5B
$87.6B
100.36%
After reporting earnings on April 24, 2014 that beat analysts' consensus estimates by 14.14%, the company's
stock jumped 8.99% as investors welcomed the report. Apple's most recent earnings announcement is consistent
with its solid long term earnings surprise record, having exceeded the street's consensus estimate by 4.55%, on
average, in its last six announcements.
Net Income Qtrly. 03/31/2014
Net Income Qtrly. Year Ago
Net Income 1 Yr. Chg.
Net Income 12 Mo. Tr. Latest
Net Income 12 Mo. Tr. 3Y Ago
Net Income 12 Mo. Tr. 3Y Chg.
Value
A
The Stock's Valuation is Attractive Based on the Company's Overall
Financial Strength
Trading currently at 13.42 times forward 12-month' earnings per share,
Apple's stock is priced at a 56.04% discount to the "optimum" P/E ratio of
30.53, calculated by MarketGrader. Our indicator looks at the 12-month
period ended in each quarter within the last two years and calculates the
company's annualized EPS growth rate, which in turn determines the
stock's optimum P/E. Based on this measure, Apple's earnings per share
have grown at an annualized rate of 1.02% during this period. This rate of
growth could decelerate soon given the company's recent margin
contraction, despite such good Profitability grades. This could in turn put
pressure on the stock price. The stock also trades at 13.42 times forward
earnings estimates for the next four quarters, lower than its trailing P/E
and the S&P 500 index's forward P/E of 15.20. By placing a lower multiple on the company's future earnings than
it does on the market as a whole, investors may see the company as financially strong but with relatively poor
growth prospects. This may offer a valuable opportunity for patient investors willing to wait for future earnings
reports.
Capital Structure
P/E Analysis
Price/Book Ratio
Price/Cash Flow Ratio
Price/Sales Ratio
Market Value
$10.2B
$9.5B
7.08%
$37.7B
$19.6B
92.85%
A+
A+
A+
A
BA
P/E Ratio 12 Mo. Tr. 03/31/2014
Optimum P/E Ratio
Forward P/E Ratio
S&P 500 Forward P/E Ratio
Price to (Tangible) Book Ratio
Price-to-Cash Flow Ratio
Price/Sales Ratio
14.67
30.53
13.42
15.20
4.50
10.09
3.02
Apple's current market value is 4.73 times its tangible book value, which excludes intangible assets such as
goodwill; this valuation seems attractive, especially considering that only 4.98% of the company's total
stockholders' equity is based on intangible assets. When the value of those assets is added back into total book
value, the price to book ratio is an even lower 4.50. Relative to the $60.84 in cash flow per share generated by
the company in the last twelve months, the stock is attractively priced at 10.09 times cash flow per share
considering its strengths across our fundamental indicators. Its price to sales ratio of 3.02 is slightly higher than
the Computer Processing Hardware's average of 1.67, both based on trailing 12-month sales. Finally, from a
value perspective, we look at how much bigger the company's market capitalization is than its latest operating
profits after subtracting taxes. From this perspective Apple's market cap of $529.00 billion , which is only 11.70
times larger than its latest quarterly net income (plus depreciation), seems like an attractive valuation.
MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved.
2
May 28, 2014
Apple Inc.
86.5
NASD: AAPL - Computer Processing Hardware
Profitability
A+
Company's Profitability Is Remarkable, Reflective of Excellent
Operating Conditions and Strong Management
Apple is a very profitable company with strong overall indicators in this
section of our analysis. The company's different measures of return to
shareholders and margins are typically above those of its peers. In the
last four quarters Apple earned a profit of $37.71 billion, equivalent to
21.48% of its sales in the period. The Computer Processing Hardware
industry had an average operating margin of 10.99% in the period. The
company's operating margin of 28.13% exceeded that average by
145.04%. Apple's return on equity, based on trailing 12-month earnings,
is not only outstanding at 31.38%, but it's higher than the 29.28% return
on equity from the year earlier period. This is an important metric of
management efficiency in our grading system, as it measures the amount
earned on an investment in the company's common stock.
Asset Utilization
Capital Utilization
Operating Margins
Relative Margins
Return on Equity
Quality of Revenues
A+
AA
A+
A+
A+
Given such strong returns the company's capital structure seems to conservative, especially assuming it could
raise debt capital to invest into what is a steady and profitable business. Apple's long term debt accounts for only
12.37% of total capital. Apple's core operations, as measured by the company's EBITDA, have generated $58.01
billion in earnings over the last twelve months, a modest -0.70% decline from the $58.42 billion earned in the
equivalent period ended a year ago. EBITDA is used as a way of measuring core earnings since it includes
money earned in its operations such as interest expense, income taxes paid and depreciation and amortization,
both of which are non-cash charges.
Cash Flow
A
Company's Cash Flow Is Very Well Managed as Our Analysis Reflects
a Very Healthy Operation
Apple showed a small improvement in its quarterly cash flow during the
latest period, in which it grew by 7.75% to $13.47 billion from the $12.50
billion reported in the same period last year. This is a marked
improvement from the 3.15% decline in cash flow in the last twelve
months versus a year before and could represent a turning point for the
company's operating profitability and its future earnings growth. Even
though the company has $16.96 billion in total debt, its net debt is virtually
zero since it has $41.35 billion in cash on hand; and since it generated
$15.85 billion in earnings before interest, taxes, depreciation and
amortization last quarter, it's safe to say its liquidity is remarkable.
Therefore the company's debt is not only very manageable with its own
cash flow but could be increased if it wanted to pursue strategic growth opportunities. The company also has the
ability to enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future
value of its earnings. <b> ** </b>
Cash Flow Growth
EBIDTA Margin
Debt/Cash Flow Ratio
Interest Cov. Capacity
Economic Value
Retention Rate
BAA+
A+
A+
A+
An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA,
which measures each company's true return to shareholders after accounting not only for the cost of running the
business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both
equity and debt, EVA measures the creation of true economic profit. In this case Apple had $137.14 billion in
invested capital in its most recent quarter, a combination of both equity and long term debt. However, the
company's weighted cost of equity of 5.70% is much larger than the weighted cost of debt, which is 0.16%. When
combined, the two result in a total cost of capital of 5.86%, quite low compared to the company's total return on
invested capital of 36.00% based on 12-month trailing operating income. The result is an excellent economic
value added of 30.13%, a very high return to investors after all capital costs are covered. The company hiked its
quarterly common dividend in its latest quarter, reported on December 31, 2013, to 3.29 cents a share from 3.05
cents, a 7.87% increase. It has now been paying dividends regularly since June 30, 2012 and the stock's current
yield is 1.99%. Apple paid out a total of $11.01 billion in common dividends in the 12 months ended last quarter,
or 20.57% of the cash flow it generated during the period, and 29.20% of total after-tax earnings. This payout
level, which seems sustainable given the company's generally healthy fundamentals, is actually lower than the
29.27% of earnings paid out in the year ended just a quarter ago. No further payout reductions seem necessary if
the company's grades remain at least at the current level or higher.
MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved.
Cash Flow Qtrly. 03/31/2014
Cash Flow Qtrly Year Ago
Cash Flow 1 Yr. Chg.
Cash Flow 12 Mo. Tr. Latest
Cash Flow 12 Mo. Tr. 3Y Ago
Cash Flow 12 Mo. Tr. 3Y Chg.
Free Cash Flow Last Qtr.
$13.5B
$12.5B
7.75%
$53.5B
$26.5B
102.12%
$9.4B
Economic Value
Total Invested Capital
Return on Inv. Capital
Weighted Cost of Equity
Weighted Cost of Debt
Total Cost of Capital
Economic Value Added
$137.1B
36.00%
5.70%
0.16%
5.86%
30.13%
3
May 28, 2014
Apple Inc.
86.5
NASD: AAPL - Computer Processing Hardware
Profile
Apple, Inc. designs, manufactures and markets personal computers and related personal computing,
and mobile communication devices. It is engaged in designing of Mac laptops, along with OS X, iLife,
iWork and professional software. Apple provides the digital music revolution with its iPods and
iTunes online store. The company's products and services include Macintosh computers, iPhone,
iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional software applications,
peripherals and iOS operating systems, third-party digital content and applications through the
iTunes Store and a variety of accessory, service and support offerings. It sells its products worldwide
through its retail stores, online stores, and direct sales force and third-party cellular network carriers,
wholesalers, retailers, and value-added resellers to the consumer, small and mid-sized business,
education, enterprise, government and creative markets. In addition, the company also sells a variety
of third-party Mac, iPhone, iPad and iPod compatible products, including application software,
printers, storage devices, speakers, headphones and various other accessories through its online
and retail stores. The company was founded by Steven Paul Jobs, Steve Wozniak and Ronald
Gerald Wayne on April 1, 1976 and is headquartered in Cupertino, CA.
MarketGrader Dilution Analysis
Impact of Change in Shares on EPS - Q2 2014
Dilution Summary
*EPS Latest
$11.62
*EPS Year Ago
$10.09
EPS Change 1 Yr.
880
C. Shares - Yr Ago(M)
946
C. Shares - 1Yr Chg.
(7%)
Smallest Company in Sub-Industry
XRS Corporation (XRSC)
Grade 31.6
Market Cap:$30.18 million
Income
Statement
Last Qtr
(03/2014)
Revenue
$45.5B
$175.5B
Op. Income
$13.6B
$49.4B
Net Income
$10.2B
$37.7B
*EPS
$11.62
0
12 Mo.
Trailing
*Earnings per share are based on fully diluted net income per share
excluding extrodinary items. This number may not match the
headline number reported by the company.
$10.81
EPS Chg. if Yr. Ago
EPS Loss from Dilution
Biggest Company in Sub-Industry
Apple Inc. (AAPL)
Grade 86.5
Market Cap:$529.00 billion
15%
C. Shares - Latest(M)
EPS if Yr. Ago Shares
Key Facts:
1 Infinite Loop
Cupertino ,CA 95014-2083
Phone:
www.apple.com
7%
$0.82
*Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company.
Balance Sheet
Total Assets
Total Debt
Stockholders Eq.
Latest
$206.0B
$17.0B
$120.2B
All numbers in millions except EPS
Ratios
Price/Earnings (12 mo. trailing)
Price/Tangible Book
Price/Cash Flow
Price/Sales
Debt/Cash Flow
Total Assets
Intangible Assets
Long Term Debt
Total Debt
Book Value
Enterprise Value
$206.0B
$6.0B
$17.0B
$17.0B
$120.2B
($24.4B)
MarketGrader.com ©2010. MarketGrader.com Corp. All Rights Reserved.
'09
'10
'11
'12
'13
14.67
4.50
10.09
3.02
31.70
Return on Equity
31.38%
Gross Margin (12 mo. trailing)
39.47%
Operating Margin (12 mo. trailing)
28.13%
Net Profit Margin (12 mo. trailing)
21.48%
'14
Qtr 1
0.00 0.00 0.00 0.00 3.05 3.29
Qtr 2
0.00 0.00 0.00 2.65 3.05
Qtr 3
0.00 0.00 0.00 2.65 3.05
Qtr 4
0.00 0.00 0.00 2.65 3.05
4
May 28, 2014
Apple Inc.
86.5
NASD: AAPL - Computer Processing Hardware
Top Down Analysis
Technology
Stocks in Sector: 846
Buys: 138 (16.31%)
Holds: 118 (13.95%)
Sells: 590 (69.74%)
No. of stocks at:
52-Wk. High: 35
52-Wk. Low: 22
Above 50 & 200-day MA: 243
Below 50 & 200-day MA: 400
Computer Processing
Hardware
Stocks in Sub-Industry: 10
Buys: 2 (20.00%)
Holds: 1 (10.00%)
Sells: 7 (70.00%)
No. of stocks at:
52-Wk. High: 2
52-Wk. Low: 0
Above 50 & 200-day MA: 2
Below 50 & 200-day MA: 6
1. Price Trend.
#
Ticker
1
AAPL
86.48
P
Apple Inc.
2
PHO.CA
84.98
N
Photon Control Inc.
3
SFUN
84.81
N
SouFun Holdings Ltd.
4
MU
83.94
P
Micron Technology, Inc.
$27.33
06/18/2014
5
WAN.CA
82.68
N
WANTED Technologies Corporation
$1.11
10/21/2014
6
OLED
81.64
N
Universal Display Corporation
$24.57
08/11/2014
7
SYNT
81.35
N
Syntel, incorporated
$80.96
07/17/2014
8
XX.CA
80.68
N
Avante Logixx Inc.
$0.38
05/28/2014
9
AZPN
80.61
P
Aspen Technology, Inc.
$44.45
08/19/2014
10
AFOP
80.60
P
Alliance Fiber Optic Products, Inc.
$20.89
07/22/2014
#
Ticker
Price
Next EPS
1
AAPL
86.48
P
Apple Inc.
$614.13
07/22/2014
2
NCR
61.47
N
NCR Corporation
$32.46
07/24/2014
3
CCUR
55.28
N
Concurrent Computer Corporation
$8.06
04/30/2014
4
HPQ
46.84
P
Hewlett-Packard Company
$33.72
08/20/2014
5
XPLR
38.22
N
Xplore Technologies Corp.
6
CRAY
32.45
P
Cray Inc.
7
XRSC
31.62
N
8
PAR
25.38
9
ARUN
10
ADAT
A+
3. Earnings Guidance. A-
Grade
Grade
Sentiment
Sentiment
Name
Name
Price
Next EPS
$614.13
07/22/2014
$0.42
08/27/2014
$12.28
08/14/2014
$5.27
06/25/2014
$28.07
08/05/2014
XRS Corporation
$2.71
11/03/2011
N
PAR Technology Corporation
$4.57
07/30/2014
24.15
N
Aruba Networks, Inc.
$17.89
08/26/2014
21.50
N
Authentidate Holding Corp.
$0.79
09/27/2013
2. Price Momentum.
A-
4. Short Interest.
A+
9.5
Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to
such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not
have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment
strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may
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5