Apple (NASDAQ: AAPL) posted excellent results for its fiscal first quarter ended December 31. Wall Street consensus was $1.55-1.60, quite a range, and Apple reported earnings of $1.76 on revenue of $9.61 billion. The "whisper" numbers were all over the board with the highest I heard of calling for earnings of $2 on revenue of $10 billion.
While Apple hit excellent numbers, especially viewed on a year-over-year basis, up 57%, the guidance for the seasonally slower March quarter was tempered down by the company. The Street expected earnings of $1.09 and Apple guided to 94 cents to 95 cents and revenue of $6.8 billion versus Street expectations of $6.99 billion.
I had the chance to speak with four different portfolio managers about their strategy for Apple. Two are keeping their positions and will add at the $140+ level. One is buying immediately as he views the Apple guidance as a shrewd move as the shares were down to the $1.55 level anyways, so why not let the steam out of the story. Apple had nothing to gain by stretching to make the March number of $1.09. If the $1.09 guidance had been maintained, that means that Apple would have to hit $1.15 to $1.16 to keep the Street happy. He thinks the strategy is brilliant.
The fourth manager who owns the shares since about $20 believes Apple will take its "revenge" on the Street and really accelerate its growth for the rest of the year. Needless to say, he's not selling a share!!
The new iPod with the touch screen was priced at $299, only $100 less than the iPhone. Some wonder if the narrow price difference led to a bit of consumer freezing the decision of which to buy. iPod sales came in at 22.1 million units, a few million under estimates. The iPhone came in on target at 2.3 million units and the Mac came in slightly ahead of plan at 2.31 million units.
The really good news was the operating margin came in at 22.1% which is stunning for a "hardware" maker. Apple, as usual, guided margins down like it has for the past 8 quarters.
What to do with the stock.
The fast momentum has been taken out of the stock for the next 2-4 months. Apple will have ticked off fast-money investors and they will bail. As the shares settle in around the $135-145 level, Apple is a buy at these levels. I had written that Apple could achieve a price target of $300 in 12 months. That target is not feasible in 2008, but it is in 2009. Apple's story is as solid as ever. International revenues up over 40%, superb margins, early in 3 major product cycles and of course, busy retail stores.
If you are an investor, Apple is a buy here, or at worst, a hold. To sell the shares here is a mistake. Apple is the game changer in the sector and the shares will bounce back.
Georges Yared is the CIO of Yared Investment Research
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Reader Comments (Page 1 of 1)
1-23-2008 @ 9:26AM
Beltway Greg said...
Macro difficulties. Tremendous quarter. This will make it easy come Sept./Oct. Recession shall abate by then. Given the overall chaos in the market I'll stick to $260 by Dec 08. Shedding 60 points in a month? Why argue. Back in July Apple went from $150 to $112 relatively the same amount of decline we've seen at this point without the recession.
Beltway Greg
1-23-2008 @ 1:05PM
BILL said...
I was going to sell some of my Apple until I read Georges Yared's latest comments. If I sold now I'd still make a good profit. If I have the patience to wait this market out, I would make much more.
I am waiting. Yared will be proven right again.
Bill
1-23-2008 @ 2:50PM
AUGUST said...
Dear Dianne,
From where I sit today having made excellent returns on techs, you are completely wrong in your assessment. APPLE is an INVESTMENT stock and not a short trader stock.
Innovation is the foundational underlayment of profitability for ANY company, product or service. Apple is probably the best at this of any modern company.
Like Georges Yared, I hope your vision goes deep and long, because if so profits will follow for you.
Thanks for listening.
AUGUST
1-23-2008 @ 3:57PM
Dianne Olivo said...
why don't you repost your thoughts from a month ago, and even from last friday...WRONG WRONG and you do not get what makes apple fly! It is a trader not an investment vehicle. Like everything in Tech, a star today and a has been tomorrow. Volitility is what makes it attractive... locking in profits will always allow you to play again. I hope the Piper Jaffray butt boys are long and eating it right now.
1-31-2008 @ 12:05AM
VIC said...
JOBS IS BRILLIANT. AS LONG AS HE IS APPLE CEO THE COMPANY WILL KEEP COMING OUT WITH PRODUCT THAT THE PUBLIC WILL WANT TO BUY. WHEN THE MARKET CALMS DOWN, APPLE WILL CONTINUE TO CLIMB. HANG IN THERE.