Apple: Still a favorite

After another tremendous quarter, the tech giant remains a 'buy' with a long-term target of $1,000.

By TheStockAdvisors Apr 25, 2012 11:58AM
By Geoffrey Seiler, BullMarket.com

While doubt was seeping into investors' minds ahead of the earnings report, Apple (AAPL), a Bull Market's Recommended List selection, once again obliterated both top- and bottom-line estimates.

The company turned in a tremendous quarter highlighted by strong iPhone and iPad sales, in addition to very robust margins. The iPhone number was the biggest thing investors were watching, and the number beat even the most optimistic estimates, helped by strong international sales.

Apple reported a fiscal second-quarter profit of $11.62 billion, or $12.30 a share, up 94% from $5.99 billion, or $6.40 a share, a year ago. Revenue soared 59% to $39.19 billion. The results easily surpassed the analyst consensus of $10.06 in earnings per share on sales of $36.8 billion.

Looking at the balance sheet, the company ended the quarter with $110.18 billion in cash and securities, or $117.84 per share, and zero debt, up from $97.6 billion last quarter.

Weak hands helped push Apple's stock down ahead of earnings, but once again Apple showed that this is a stock to continue to hold for the long haul, not to trade.

While the quarter was impressive, there are more catalysts in store for later this year, including the possible announcement of a full-fledge iTV, but more importantly the launch of the iPhone 5 in the fall.

We could see some customers delay iPhone purchases in anticipation of the new smartphone, which could impact the September quarter, but we think a 4G iPhone will prove to be the biggest smartphone launch in history.

Apple now trades at under 12 times the fiscal year 2013 (ending in September) consensus earnings, and about 9.5 times, excluding its net cash and investments.

For a stock that continues to grow at the rate of Apple, it remains substantially undervalued, and the consensus is likely low. We're going to up our target from $725 to $825 on the solid report and keep our "buy" rating.

We also continue to believe some fears over carrier subsidies, while a legitimate potential risk, are overblown and CEO Tim Cook addressed the issue eloquently on the call.

We have a near $60 cost basis in the stock and an over 900% return. However, it remains one of our favorite investment ideas, and we think that the stock will eventually hit $1,000 in the coming years.

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1Comment
Apr 25, 2012 3:25PM
avatar
This isn't proof. Next quarter will be the proof.
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