THE APPLE INVESTOR: Stock Blasts To New High On Blowout Quarter

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AAPL rockets to new high on earnings and iPhone sales.
After the monster March quarter beat expectations across the board, AAPL stock is up about 6% to $260 or 17x estimated fiscal-year 2010 EPS and 11x Enterprise Value / Trailing Twelve Months Free Cash Flow. Investors will now be focused on traction with the iPad as well as the forthcoming new iPhone. Upcoming catalysts include monthly NPD data (Mac / iPod business), the domestic 3G iPad launch date (April 30); international release of the iPad (May 10); and the launch of the next generation iPhone (this summer) as well as the CDMA / Verizon version (rumoured to be ready in time for the holidays).

Apple Crushes Estimates (Business Insider)
Apple blew out the quarter last night with earnings, revenue and iPhone sales beating expectations by a mile. Revenue guidance was also strong, but margins will likely contract as the company spends on “more extraordinary products in the pipeline for this year.” Here’s the breakdown of how what the company printed versus Wall Street consensus estimates:

  • Revenue: $13.5 billion vs. $12.06 billion consensus
  • EPS: $3.33 per share vs. $2.44 per share consensus
  • iPhone: 8.75 million vs. 6.8 million consensus
  • Mac: 2.94 million vs. 2.7 million consensus
  • iPod: 10.89 million vs. 9 million consensus
  • June Quarter Guidance: Revenue of $13 billion to $13.4 billion (higher than consensus of $12.94 billion) and EPS of $2.28 to $2.39 (below consensus of $2.69 as the company spends on the product pipeline)

Wall Street Heavies Bang The Drum On Apple (Reuters)
If you missed the conference call last night, a transcript can be found here.

  • Scott Craig (Bank of America / Merrill Lynch): He is positive on Apple’s growth potential and market share gains and thinks valuation is compelling based on the upside potential in the Mac and iPhone businesses as well as stronger than anticipated gross margin. He reiterates his Buy rating and is increasing his price-target to $300.
  • A.M. (Toni) Sacconaghi (Bernstein Research): Believes Apple is primarily an iPhone driven story. Upside remains form incremental carrier distribution (globally) as well as the potential for a non-data plan iPhone. He reiterates his Outperform rating and is increasing his price-target to $300.
  • Richard Gardner (Citigroup): is refreshing his bull thesis based on confidence that the strength will continue throughout the year as the iPad contributes, the iPhone and iPod will be refreshed, and a CDMA phone will likely be available on the Verizon network in time for the holiday season. He maintains his Buy rating and is increasing his price-target to $320.
  • Bill Shope (Credit Suisse): Even after increasing his estimates, he believes they are still conservative. Historically the March quarter has been around 20% of Apple’s full fiscal year earnings. If this historical rule were to apply to the blow out quarter, annual would be astronomical. While possibly too aggressive, it’s an indicator that the stock is likely undervalued. Apple remains his favourite stock pick and Shope reiterates his Outperform rating, increasing his 12-month price-target to $315.
  • Chris Whitmore (Deutsche Bank): Sees three major product cycles converging: The iPad which is off to strong demand; the iPhone which will introduce it’s next generation this summer; as well as the recently refreshed Mac lineup. He maintains his Buy rating and is increasing his price-target to $300.
  • David Bailey (Goldman Sachs): The upside underscores the leverage in the model as well as the power of the expanding product lineup. He believes the shares are fairly valued after the run up after hours and based on current estimates. He reiterates his Neutral rating and ups his price-target to $270.
  • Mark Moskowitz (J.P. Morgan): While there was some investor discontent with gross margins (iPad and newer initiatives), he believe that the overall revenue and earnings growth profiles have no rivals in large-cap technology. The company’s revenue and earnings growth could stay well above 20%, requiring a positive reset to the stock’s valuation. He reiterates his Overweight rating and is increasing his price-target to $316.
  • Katy Huberty (Morgan Stanley): All eyes will be on the iPhone going forward with the 25% unit beat this quarter and the upcoming next gen launch in June. She believes the market under-appreciates long-term demand for both the iPhone and iPad and believes 25% smartphone market share is attainable in the next 3-4 years. Katy maintains her Overweight rating and is increasing her price-target to $275.
  • Gene Munster (Piper Jaffray): While the shares will likely trade up following the March results, he believes additional upside remains as the iPhone business continues to flourish. He maintains his Overweight rating and is raising his price-target to $323.
  • Mike Abramsky (RBC Capital): Apple has four large market opportunities with strong competitive advantages; the iPhone’s global market expansion, the iPad launch, further PC share gains and contribution from the iPod / iTunes contribution. He reiterates his Outperform rating and is raising his price-target to $350.

iPhone Sales In China Explode (Fortune)
Even after Steve Job’s tip off that the company had sold more than 50 million total iPhones, analysts still came up about 25% short of the total iPhone unit number during the quarter. So where did about 2 million units come from? China. In less than six months. While 2 million off of a base of about a billion smartphone users isn’t all that impressive, if you narrow down the addressable socio-economic target market, Apple’s audience is more like 50 million. Meaning, Apple captured about 4% of the market in less than half a year.

AT&T Results Reveal That The Domestic iPhone Business Is Stalling; Time To Get More Carriers (Business Insider)
While Apple’s iPhone had another stellar quarter, AT&T (the exclusive iPhone carrier) revealed today that Apple’s international iPhone business is growing far faster than its U.S. business. Specifically, while sequentially Apple’s overall iPhone business was flat (off a monstrous holiday quarter), it actually declined in the U.S. Dan Frommer at Business Insider believes that this is one of the reasons why Apple should start selling its iPhone through more U.S. carriers, especially the nation’s biggest, Verizon Wireless.

Seven Things You Need To Know About Apple (And They Are All Good) (Minyanville)
Michael Comeau at Minyanville outlines the seven key take aways from the Apple quarter: 1) the iPhone has incredible pricing power, 2) iPhone sales matched that of the gigantic holiday quarter, 3) the Mac business is still on track, 4) the company’s balance sheet is pristine, 5) Jobs stole Gates’ quarterly sandbagging technique, 6) the summer is shaping up to be solid and 7) the company has a lot more up its sleeve.

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