Why the AAPL Earnings are so incredible
A surprise that should have never happened
Apple is quite possibly the most covered stock in the world. Analysts pore over information, they study channels, they exploit the information leaks. In addition, Apple itself provides very accurate earnings estimates....perhaps a little too accurate in the Tim Cook era. Meaningful surprises are really very unusual, with the exception of new products, and Apple hasn't produced any meaningful new products for a while, so there really shouldn't have been any reason for surprises, right?
Then Apple goes and CRUSHES earnings due to an AMAZING iphone sales beat. Huh? So, if you're an analyst covering Apple, how did you allow this to happen? It's pretty easy. The analysts had no idea how to estimate the impact of China Mobile, so they pretended that it wasn't a big deal. The estimates for the impact of that deal ranged from no impact (huh?) to absurdly conservative. There wasn't a single major Apple analyst who predicted a large impact due to China Mobile.
A compelling short-term story
1) The truth is China Mobile IS A BIG DEAL and will continue to big part of the short and mid-term success of the Apple story.
2) The buybacks are working. With some companies, buybacks seem to somehow never make it to the earnings per share (usually due share compensation programs). However, Apple's buybacks are actually moving the needle to the tune of 15% earnings growth. Allocating another $30 billion at the current Apple prices seems like a wise investment to me.
3) 8% increase in dividend
4) 7 to 1 Stock Split – I am not always in favor of a stock split, but I love it for Apple. It will have several positive impacts.
· It will encourage dividend reinvesting
· It will allow for a more diverse investor pool
· It will allow for the possibility of inclusion into the DOW index
A compelling long-term story
1) The success of China Mobile points to successful entry into foreign markets. Rather than seeing this as an end, I see this as the beginning of a strong and continued push into emerging markets.
2) Continued investment in innovation – To me, it was good news that Apple was on the prowl buying companies that can add to its internal innovation portfolio.
3) More products are coming. Cook continues to promise that new products are coming, and they are inevitable.
Still a value story
It continues to baffle me that the strongest company in the world trades at one of the world’s worst multiples.