Wwdc will likely be a minor stock driver as apple

Info icon This preview shows pages 5–7. Sign up to view the full content.

View Full Document Right Arrow Icon
WWDC will likely be a minor stock driver as Apple pushes toward a $1 trillion market cap, but every bit helps. Although AAPL has made a big move since its 2Q18 report, we continue to see value in the shares, given multiple growth and margin expansion drivers across this increasingly global enterprise. These include exceptional growth in the services business, favorable mix and ASPs that are driving iPhone revenue growth, and an unmatched capital allocation program that has brought in a new class of investors. EARNINGS & GROWTH ANALYSIS For fiscal 2Q18 (calendar 1Q18), Apple posted revenue of $61.14 billion, up 4% year-over-year but down 31% sequentially from the peak holiday quarter for this increasingly seasonal company. Revenue was within management’s $60-$62 billion guidance range and matched the consensus forecast. The 2Q18 GAAP gross margin of 38.3% was trimmed sequentially from 38.4% in 1Q18 and compressed further from 38.9% a year earlier. The GAAP operating margin narrowed sequentially to 26.08% in 2Q18 from 29.8% in 1Q18 on reduced volume leverage, and was down from 26.7% a year earlier. GAAP earnings totaled $2.73 per diluted share, up 30% year-over-year but down $1.16 sequentially from the peak holiday quarter of fiscal 1Q18 (calendar 4Q17). Fiscal 2Q18 EPS was $0.09 above the consensus call of $2.70. For all of FY17, revenue of $229.26 billion rose 6% from $215.6 billion in FY16. Apple earned $9.19 per share for the year, up 10% from $8.28 in FY16.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
M ARKET D IGEST - 6 - For fiscal 3Q18, the company’s weakest quarter, Apple forecast revenue of $51.5-$53.5 billion, which at the guidance midpoint would be up 18% annually; the midpoint also exceeded consensus. Apple modeled a gross margin of 38.0%-38.5%; operating costs of $7.7-$7.8 billion; interest income of $400 million; and a tax rate of 14.5%. On that basis, Apple appears primed to earn $2.25-$2.30, which was also better than the prereporting consensus and indicates 30%-plus annual growth. Our fiscal 2018 earnings forecast is $11.48 per diluted share. Our fiscal 2019 forecast of $12.81 per diluted share may be conservative, but we are making no changes at this point. With no significant adjustments, events or charges in any period, our GAAP and non-GAAP earnings estimates are identical. Our long-term EPS growth rate forecast for AAPL is 13%. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on Apple is High, the top of our five-point scale. Cash was $267.2 billion at the end of 2Q18. Cash was $277.0 billion at the end of fiscal 2017, $237.6 billion at the end of fiscal 2016, $206 billion at the end of fiscal 2015, and $155.3 billion at the end of fiscal 2014. Debt was $121.8 billion at the close of 2Q18. Debt was $115.7 billion at the end of 4Q17 and $87.0 billion at the end of fiscal 2016. In recent years, Apple has levered up in anticipation of more aggressive capital allocation. Debt was $64.5 billion at the end of fiscal 2015 and $32.3 billion at the end of fiscal 2014. The use of debt gives the company operating flexibility without the need to bring back cash from overseas at onerous tax rates.
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern