David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
I agree that one can learn a lot from reading the footnotes. A recent example is Apple detailing out additional warranty costs that it accrued in the March quarter that lowered its gross margin by 90 basis points.
Your outcome assumes such a large drop-off in profitability I used the prior years cash flows to double-check the Net Income vs. NOPAT analysis so as to make sure I understood your model as much as possible.
I also utilize cash flows as a significant portion of my regular analysis since over time it gives a better indication of a company’s performance.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
Your reply begs the question of what are your assumptions for units, ASPs, operating expenses, capital expenditures, dividends, buybacks and the other variables that will determine Apple’s future earnings and cash flow.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
Thank you for the unadjusted model. I would suggest that to support your case it would be better to show an out year, lets say 2014 or 2015, with the results that would be needed to hit your ROIC assumption.
By using an assumed ROIC you back into NOPAT and cash flows. The results show that Apple will have to have a huge decrease in earnings and cash flows which are very unlikely to be achieved. NOPAT margins will need to decrease from 23.3% in 2011 to 6.9% and 5.1% based upon your model.
Do you have unit, ASP and operating cost models that show Apple’s profitability decreasing to get to these NOPAT margins? If you do would you be willing to share the assumptions that would drive down profits? Otherwise using a number that derives a result that is so different from what appears most likely to occur (good profitability with growth of either plus or minus 10%) doesn’t seem to stand up to scrutiny.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
Obviously I felt very good when the stock was at $704. Fortunately my cost basis is below the current price and even the recent low. Since I've been investing for over thirty years I've had my share of gains and losses (more gains than losses) so try not to get wrapped up with what happened except to learn from it.
What Is Apple's 'Rate Of Return' For The Next 3 Years? [View article]
I do expect Apple to increase its dividend. I believe that Apple has taken a multi-year approach to the dividend and they know that companies that raise it on a regular/annual basis are more highly valued. The gating factor will be how much U.S. based cash they can generate. Currently it is all going to just the dividend. It is having to dip into its substantial U.S. based cash and borrow to buy back stock. Unless there is a tax holiday or U.S. profits increase substantially it will have to continue to borrow more money especially if they want to buy back more stock.
What Is Apple's 'Rate Of Return' For The Next 3 Years? [View article]
In theory this analysis is not very dependent on earnings and cash flow unless there is a major downward movement that would make management change what they have announced.
You are correct that the space is becoming more competitive and that Apple does need new products.
I believe that they should keep the same "style" for product announcements and not disclose them any earlier just to address investor concerns. Apple gets a huge amount of free publicity with the process they have implemented and if they were to announce what is coming out it would freeze even more purchases than it currently experiences. It would also give the competition information at an earlier stage so they could react.
Apple's New Financial Guidance Will Reduce The Volatility Of The Shares [View article]
While the wording is only slightly different I do believe it indicates a change in objective on what they are working to achieve, a closer projection to what actuals will be and therefore mitigate the excessive estimates that have occurred over the past few years.
Apple has given gross margin guidance for a number of years along with operating expenses, other income and tax rate. They were providing EPS and now that is essentially the only number that they are not providing. I don't believe they said that they were not going to give EPS guidance but it is easy enough to calculate.
Apple's New Financial Guidance Will Reduce The Volatility Of The Shares [View article]
Yes, I saw the stock was/is down about 2%. The change in guidance won't remove volatility but should lessen it. This may not happen until a few quarters have been announced and analysts/investors can gauge how good the guidance is.
Apple Cash And Investments Are Disclosed And Supports The Stock [View article]
While I believe you are correct that Apple is traded overseas and I don't know the exact regulations/laws it is widely known that you can only use US based cash to buy back stock or pay dividends. If that wasn't the case there wouldn't be this problem.
The Real Truth About Apple's Q4 Results [View article]
While you are correct that Interest Income would be around $290 mil. I believe almost all the analysts (sell-side and buy-side) would be close to the guidance of $175 mil (I was at $190 mil in my model) since management has a better view on the various moving parts to this item. Based on my numbers that is how I can up with my $0.19 after-tax impact.
Also to take into account Gary's reply the Street would assume that the "lost" positive impact from the hedging would be taxed. Maybe it would not have been but getting into the details of the tax rate probably isn't a big enough number for the analysts to spend a large amount of time digging into.
Also, the analysts would have used the 25.5% guided tax rate since management has a better view to what it will be. In tracking how the actual rate compares to the guided rate there isn't as clear a pattern compared to the revenue and EPS beats the company produces. Therefore since the actual tax rate was 99 basis points lower than guided (actual of 24.51%) one should take into account the $0.12 positive impact from it. That would lower the $8.90 to $8.78.
Overall these are smaller points to the disappointing iPad units of 14 million and gross margin guidance of 36%. These are the bigger factors on what has been driving the weakness in the shares probably combined with a change in sentiment to the stock/company and tax related selling.
The Real Truth About Apple's Q4 Results [View article]
One adjustment that needs to be taken into account is taxes. The after-tax impact is approximately $0.19 vs. the $0.25.
Also Apple's tax rate was 24.5% vs. company guidance of 25.5% for the quarter. This had a positive impact of about $0.12 per share.
When these two adjustments are taken into account EPS was negatively impacted by a net of $0.07 which would have resulted in EPS of $8.74, essentially in-line with the published sell-side numbers of $8.75.
However, I believe the buy-side was looking for $9.00 or higher so overall it was still short of what the Street was expecting.
The 5 Most Worrisome Trends At Apple [View article]
One should never compare cash flows on a quarter vs. quarter comparison. Even a year to year comparison is dicey. Cash flows can be very dependent on part supply deals, extended payments and other items that management can take advantage (or be disadvantaged). CFOs that I have talked with recommend a three year timeframe.
Verizon's iPhone Sales, comScore Data Portend Strong Apple Results [View article]
When I take the iPad number from 19 million to 15 million it takes my revenue down by about $2 billion and EPS from $9.50 to $9.00, not quite as steep as what you estimated but still significant.
With AT&T selling 4.7 million iPhones in the Sept. qtr. it does help to support the 27 million projection. While AT&T's q/q iPhone sales increased by 27% and Verizon's by 15% since the iPhone was not available worldwide it tempers how to project off of last quarters 26 million total iPhones sold. If Sprint sells 1.6 million, vs. the nearly 1.5 million last quarter those three carriers would account for 35% of a 27 million number. This compares to the 37% they were responsible for in the December 2011 quarter when the iPhone 4S was launched.
One last tidbit. Nokia's smartphones units have gone from 16.8 million in September 2011 to 10.2 million in June 2012 to 6.3 million in September 2012. While a large number have been lost to Android I suspect that Apple is picking up some of the lost Nokia sales.
Verizon's iPhone Sales, comScore Data Portend Strong Apple Results [View article]
Not quite sure what you mean by "very pessimistic for 2013?" If you think I am I didn't mean to come across that way. With an EPS number of $60 for calendar 2013 which would be at least at the high-end of Street numbers it shouldn't show pessimism.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
Your outcome assumes such a large drop-off in profitability I used the prior years cash flows to double-check the Net Income vs. NOPAT analysis so as to make sure I understood your model as much as possible.
I also utilize cash flows as a significant portion of my regular analysis since over time it gives a better indication of a company’s performance.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
By using an assumed ROIC you back into NOPAT and cash flows. The results show that Apple will have to have a huge decrease in earnings and cash flows which are very unlikely to be achieved. NOPAT margins will need to decrease from 23.3% in 2011 to 6.9% and 5.1% based upon your model.
Do you have unit, ASP and operating cost models that show Apple’s profitability decreasing to get to these NOPAT margins? If you do would you be willing to share the assumptions that would drive down profits? Otherwise using a number that derives a result that is so different from what appears most likely to occur (good profitability with growth of either plus or minus 10%) doesn’t seem to stand up to scrutiny.
David Trainer's $240 Apple Price Target Analysis Just Doesn't Add Up [View article]
What Is Apple's 'Rate Of Return' For The Next 3 Years? [View article]
What Is Apple's 'Rate Of Return' For The Next 3 Years? [View article]
You are correct that the space is becoming more competitive and that Apple does need new products.
I believe that they should keep the same "style" for product announcements and not disclose them any earlier just to address investor concerns. Apple gets a huge amount of free publicity with the process they have implemented and if they were to announce what is coming out it would freeze even more purchases than it currently experiences. It would also give the competition information at an earlier stage so they could react.
Apple's New Financial Guidance Will Reduce The Volatility Of The Shares [View article]
Apple has given gross margin guidance for a number of years along with operating expenses, other income and tax rate. They were providing EPS and now that is essentially the only number that they are not providing. I don't believe they said that they were not going to give EPS guidance but it is easy enough to calculate.
Apple's New Financial Guidance Will Reduce The Volatility Of The Shares [View article]
Apple Cash And Investments Are Disclosed And Supports The Stock [View article]
Apple's Growing Channels [View article]
The Real Truth About Apple's Q4 Results [View article]
Also to take into account Gary's reply the Street would assume that the "lost" positive impact from the hedging would be taxed. Maybe it would not have been but getting into the details of the tax rate probably isn't a big enough number for the analysts to spend a large amount of time digging into.
Also, the analysts would have used the 25.5% guided tax rate since management has a better view to what it will be. In tracking how the actual rate compares to the guided rate there isn't as clear a pattern compared to the revenue and EPS beats the company produces. Therefore since the actual tax rate was 99 basis points lower than guided (actual of 24.51%) one should take into account the $0.12 positive impact from it. That would lower the $8.90 to $8.78.
Overall these are smaller points to the disappointing iPad units of 14 million and gross margin guidance of 36%. These are the bigger factors on what has been driving the weakness in the shares probably combined with a change in sentiment to the stock/company and tax related selling.
The Real Truth About Apple's Q4 Results [View article]
Also Apple's tax rate was 24.5% vs. company guidance of 25.5% for the quarter. This had a positive impact of about $0.12 per share.
When these two adjustments are taken into account EPS was negatively impacted by a net of $0.07 which would have resulted in EPS of $8.74, essentially in-line with the published sell-side numbers of $8.75.
However, I believe the buy-side was looking for $9.00 or higher so overall it was still short of what the Street was expecting.
The 5 Most Worrisome Trends At Apple [View article]
Verizon's iPhone Sales, comScore Data Portend Strong Apple Results [View article]
With AT&T selling 4.7 million iPhones in the Sept. qtr. it does help to support the 27 million projection. While AT&T's q/q iPhone sales increased by 27% and Verizon's by 15% since the iPhone was not available worldwide it tempers how to project off of last quarters 26 million total iPhones sold. If Sprint sells 1.6 million, vs. the nearly 1.5 million last quarter those three carriers would account for 35% of a 27 million number. This compares to the 37% they were responsible for in the December 2011 quarter when the iPhone 4S was launched.
One last tidbit. Nokia's smartphones units have gone from 16.8 million in September 2011 to 10.2 million in June 2012 to 6.3 million in September 2012. While a large number have been lost to Android I suspect that Apple is picking up some of the lost Nokia sales.
Verizon's iPhone Sales, comScore Data Portend Strong Apple Results [View article]
If you think I am I didn't mean to come across that way. With an EPS number of $60 for calendar 2013 which would be at least at the high-end of Street numbers it shouldn't show pessimism.