Thesis On Apple Remains Firmly Intact Post Fiscal Second Quarter Earnings

| About: Apple Inc. (AAPL)

On Tuesday, Apple (NASDAQ:AAPL) reported tremendous fiscal 2012 second quarter results. The iPad-maker's revenue came in at $39.2 billion, while net earnings were $11.6 billion, or $12.30 per diluted share, blowing by consensus estimates (which were $10.02 per share). We are maintaining our $636 per share fair value estimate at this time and expect the firm to converge to that level in short order.

Apple's growth rates were absolutely fantastic and compared to revenue of $24.7 billion and net earnings of $6 billion, or $6.40 per diluted share, in the same period a year ago. The company's gross margin also advanced roughly 6 percentage points from the same period a year ago, revealing significant pricing power within its supply chain. As it relates to internals, Apple sold 35.1 million iPhones in the quarter (88% growth) and 11.8 million iPads during the quarter (151% growth). The company sold 4 million Macs (7% growth), and as expected, iPod sales fell from the same period a year ago. It was truly an amazing quarter, and Apple continues to defy the skeptics (for now).

Importantly, we think this report shows that investors should not overreact to daily or even weekly swings in the price of a firm's shares. From its top just a few weeks ago, Apple has lost roughly $70 billion in market capitalization. Not only do investors sell for reasons unrelated to a company's fundamentals, but at times investors can fall prey to misinformation. That is why our Valuentum Buying Index (VBI) ratings do not change on a daily basis, as it simply takes time to get an accurate read on any fundamental or technical changes of a firm's stock. We want to deliver ideas with conviction and confidence. With the report today - and the subsequent positive commentary still to come from the sell side - we fully expect the company to converge to our fair value estimate of $636 per share very soon.

(Our report on Apple)

After pulling in roughly $14 billion in cash flow from operations in the March quarter, Apple now has over $110 billion in cash equivalents and marketable securities, which amounts to roughly $116.60 per share. Annualizing first quarter earnings and backing out this excess cash from Apple's $600 after-hours price, the firm is trading at just 9.8 times current calendar-year earnings (and that assumes no sequential expansion, which we believe to be conservative). We continue to expect further valuation upside in Apple and continue to view it as a core holding in the portfolio of our Best Ideas Newsletter.

Click to view Apple's fiscal 2012 second-quarter press release.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: AAPL is included in the portfolio of our Best Ideas Newsletter.