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Apple Does An About-Face

May 02, 2018 9:02 AM ETApple Inc. (AAPL)61 Comments


  • This cash-generating machine is about to increase its return to shareholders.
  • Apple Services delivers yet another strong performance.
  • Still too cheap to be ignored.

Investment Thesis

Apple (NASDAQ:AAPL) has been for a long time one of my favorite mega-cap investments. Thus, the results that Apple delivered Tuesday really made for satisfying reading. Moreover, to my delight, Apple announced a change to its capital allocation strategy. Apple makes for a phenomenal investment.

Shareholder Return

I wrote an article about Apple a few weeks ago, where I referenced Apple's Q1 2018 earnings call and said,

[CFO] Maestri made it clear that the excess cash that Apple had, was going to be deployed slowly over time. That the cash belongs to Apple's patient and long-term investors, that Apple would not be returning the cash over a few swift years, with a special dividend or any such program.

That comment was made in reference to the Q&A section of the earnings call, where Maestri had said,

We’re going to be very thoughtful and deliberate about [redeploying the cash]. Obviously, we want to make the right decisions in the best interest of our long-term shareholders.

Therefore, when Apple released its Q2 2018 press statement - which revealed a brand new $100 billion share repurchase plan and a 16% dividend increase - analysts who were long the stock felt delighted.

Results In More Detail

There was really no aspect to fault Apple on this quarter. For a company of its size, to deliver top-line growth of 16% is practically unheard of – a truly remarkable performance. If you have read any of my previous articles on Apple you will know that I have been for a long time highly bullish of Apple's opportunity to expand on its margins through its increased exposure to its Services. Thus, Apple's increased revenue from Services together with continued cost improvements allowed Apple to deliver a solid gross margin of 38.3%, in spite of having to

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