The Street is going wild for Apple today, but this is the most bullish thing we’ve seen yet. Moskowitz says the earnings will bring the message back to Apple’s amazing financials and away from Antennagate. Here’s his bullet points for why Apple will soar:
- Big results should focus investors back on the model. For F3Q10, Apple reported record revenue of $15.7 billion and EPS of $3.51, versus Street consensus estimates of $14.75 billion and $3.16. Our estimates had been $14.81 billion and $3.11. Gross and operating margins came in at 39.1% and 27.0%, versus our estimates of 38.6% and 26.2%. Apple generated cash flow from operations of $4.4 billion.
- Gross margins come in well above prior guidance. Gross margins for F3Q were 39.1% and 310 basis points above guidance. We believe F4Q guidance of 35% gross margins is conservative as the ramps of iPad and iPhone 4 platforms should achieve greater economies of scale. We do not expect the gross margin guidance to be a topic that carries much risk as the iPad and iPhone 4 should ride the cost curve just a few quarters out.
- iPad roars out of the gate. Apple reported 3.27 million iPad unit shipments from 10 countries in the quarter, versus our estimate of 3.75 million units. At this point, we do not think the iPad will cannibalise sales of other Apple products as some fear. In contrast, we think another “halo effect” could be in the making, whereby sales of the iPad drive customers to purchase other Apple products, such as the Mac for home use while the iPad is used on the road.
- We reiterate our Overweight rating and increase our Dec-11 price target to $400, from $390 previously. Apple is also on the J.P. Morgan Analyst Focus List. While the media-driven frenzy over the iPhone 4 antenna issue is not likely to fade yet, we believe Apple’s quarterly performance should restore focus back on the model’s high-growth stature. At 13.9x our revised C2011 EPS estimate, versus the peer group average of 12.6x, we believe Apple is trading like a value stock and not as the high-growth story in large cap equities.
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