Green & Gold Fund
Recommendation: Hold Apple (AAPL)
Buy limit at $425 per share
Investment Thesis
We recommend a hold on AAPL and a buy limit
at $400 per share. We believe Apple is a healthy
company that will recover from its current short
term downtrend through its expansion into
China’s mobile market and upcoming product
line innovations.
Financial Information
• Continuously increasing revenue, free
cash flow, net income.
Long term uptrend, Short term downtrend
AAPL Investment Information
Apple Inc. (AAPL) -NasdaqGS
452.67 61.34(11.93%) 1:58PM EST – Nasdaq
Prev Close: 514.01
Open:
460.14
Bid: 454.15 x 100
Ask: 454.27 x 400
1y Target Est:
713.32
Beta: 0.93
Day's Range:
450.66 - 465.73
52wk Range:
443.14 - 705.07
Volume: 40,781,143
Avg Vol (3m):
21,523,100
Market Cap:
427.23B
P/E (ttm): 10.29
EPS (ttm): 44.15
Div & Yield: 10.60 (2.10%)
SWOT Analysis
Strengths:
• Well Diversified Product Mix
• Robust Research & Development
• Strong Brand Image
Weaknesses:
• Dependence on Network Providers
• Unresolved Legal Proceedings
• Limited iPhone/Mobile Phone Variants
Opportunities:
• Innovative Products & Designs
• Scope in Retail Segment
• Emerging Markets Providing Ladder for Growth
Threats:
• Intense Competition
• Absence of Multiple Distribution Network
• Theft of Digital Content
Source: GlobalData
AAPL Earnings and Estimates
• Apple forecast sales of $41 billion to
$43 billion for the second quarter.
That compares with predictions by
analysts for revenue of $45.5 billion.
• Apple is also changing the way it
provides financial outlooks to
investors, after years of exceeding
quarterly profit estimates by an
average of 26 percent. Rather than
providing “conservative” forecasts,
Apple expects to report results
within its predicted range.
Product Sales Compared with Analyst
expectations
• 13-week fiscal 2013 first quarter ended December 29, 2012 below expectations but still
setting record sales highs. Note that last year was a 14 week quarter.
• Sales rose 18 percent to $54.5 billion, falling short of $54.9 billion, the average analyst
estimate compiled by Bloomberg. The lack of profit growth reflects higher
manufacturing costs due to a product lineup overhaul ahead of the holiday shopping
season. The company introduced the iPhone 5, iPad mini and a restyled Mac.
Additionally, the products that are selling the best happen to be the ones with the lowest
profit margins.
• These results compare to revenue of $46.3 billion and net profit of $13.1 billion, in the
14-week year-ago quarter.
• Gross margin was 38.6 percent compared to 44.7 percent in the year-ago quarter. But is
still higher than the estimated 36% in October.
• International sales accounted for 61 percent of the quarter’s revenue.
• Sold 4.1 million macs, estimates were 5.1 million (Cook said Apple couldn’t manufacture
enough Macs to keep up with demand, holding back sales)
• Sold 12.7 million iPods, estimates 11.4 million
• Sold 47.8 million iPhones, estimated 47.8 million
• Sold 22.9 million iPads, estimated 22.4 million
Growth Opportunities
• AAPL is just now beginning to expand into the
Chinese market, which is the largest in the
world. They opened 4 new stores there this
past quarter.
• Further revisions and expanding of the Apple
TV product line.
• Creating a product line of less expensive
iPhones.
iPhone 5
• The Wall Street Journal reported on January 14th that Apple was
slashing orders for iPhone 5 parts by half. Apple notified suppliers
last month that it was cutting orders of LCD screens and other
components for the current quarter. Weaker-than-expected
demand and lackluster sales for the iPhone 5 have been cited as
the reasons behind the production changes.
• According to Morningstar, Apple's forecast was for 65 million
iPhone screens in the March quarter.
• “If accurate, we suspect that such a forecast would have been
unrealistically high to begin with and that some degree of order
cuts should have been expected.”
• “Apple could still be reasonably expected to sell at least 40 million
iPhones, if not 50 million, in the March quarter, which we would
consider to be a strong number.”
CHINA
• China Mobile, the largest mobile service provider in the world with over 700 million
subscribers, currently does not offer the iPhone. China Mobile’s network system is
incompatible with the technology used in iPhones.
• CEO Tim Cook met with China Mobile executives earlier this month to discuss “matters of
cooperation.”
• "China is currently our second largest market. I believe it will become our first. I believe
strongly that it will.” – CEO Tim Cook
• “Our revenues were $7.3 billion in the quarter(In Greater China). So, this is incredibly
high, it’s up over 60% year-on-year. And again, that’s comparing 13 to 14 weeks and so
it’s really the underlying growth, it’s higher than that. We saw exceptional growth in
iPhones into the triple digits. iPad, we shipped iPad very late in the quarter in December,
and despite that, saw very nice growth. We are expanding in Apple retail there. In the
year ago quarter, we had 6 stores we now have 11. We obviously have many more to
open there. In our premium resellers, we went over 400, up from a little over 200 in the
previous year. And we increased iPhone point of sales from 7,000 to over 17,000 there.
And now this isn’t nearly what we need and it’s not the final by any means, we are not
even close to that, but we are making, I feel that we are making great progress that was
just over there recently. And I was talking to a lot of different people and I am very happy
with how things are going.“ Tim Cook
Recommendation
Sector : ITT
Current Holdings: IXP, IXN, EMC, ORCL, AAPL
Target Sector Allocation: 11.52%
Current Sector Allocation: 7.94%,
Purchased 20 shares of AAPL on March 24, 2011
@354.64 per share. ($7,093)
• Currently @ 503.02 per share. ($10,060)
• $2,967 Gain
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• HOLD 20 shares of AAPL. ($10,060, 2.54% of
portfolio, 27.32% of sector) BUY LIMIT at $425.
• year end target price: $713.32