Breakout

Apple Destroys Estimates AND the Stock Is Still Cheap!

Jeff Macke
Breakout

If Hewlett Packard (HPQ) or Dell (DELL) dreamed of reporting a quarter as good as the one Apple (AAPL) posted last night, they would wake up and apologize to Steve Jobs.

Here's what stood out:

  • Apple's Cash on Hand grew by 16% to $76.2 billion. The number works out to roughly $81 per share. Were they so inclined, Apple could write checks for Netflix (NFLX) and Ebay (EBAY) combined and still remain liquid.
  • Apple's revenue growth is actually accelerating.
  • The company beat EPS estimates by over 30% and revenue forecasts by 15%. These numbers speak ill of the people analyzing Apple but are jaw-dropping nonetheless.
  • The stock continues to perform yet somehow gets cheaper; trading at over 18x earnings yesterday and in the vicinity of a 15 P/E today.

Apple had a good quarter and is a pretty impressive company is what I'm saying. Of course, as I noted 3 months ago, Apple always beats expectations. It's what the company does. That being the case Breakout welcomed David Garrity, a Principal with GVA Research to lay out what Apple has to do in order to continue its torrid pace.

The Red Elephant in the room of Apple's growth plan is obviously China. To that end Apple has announced plans to pair with China Mobile (CHL) and their over 600mm customers to extend the reach of the iPhone. Asia Pacific is already 22% of Apple's revenues (up from 12% in 2010 Q2), so they aren't starting from scratch but obviously success in China is going to be critical. Said another way, Apple can only steal so much American business from PC makers and Research in Motion (RIMM), they need to blast off in China to keep posting the numbers to which Apple bulls have become accustomed.

Returning to the States and Apple's much-hyped iCloud service, Garrity sees it as something of an atypical defensive move for the Cupertino Crushers. iCloud will follow Cloud initiatives by Amazon (AMZN) and seemingly every other vaguely tech-related concern on the planet, using Apple users' installed content base as a differentiation point. A best case scenario for Apple is that iCloud will help Apple broaden its footprint with enterprise customers, an arena in which Apple has had some degree of trouble penetrating.

To the extent one can have concerns about a company whose stock he expects to appreciate by 35% in the next 12 to 18 months, Garrity is worried about China's habit of extracting the lion's share of profits from its trading partners. "No one's ever beaten the Chinese" he notes, adding that if China didn't play fair with Google (GOOG) it's somewhat naive to think they'll roll over for Apple.

Beyond that, hey, if you're looking for someone to nit-pick the best earnings report of the year, you've come to the wrong place. Apple was tremendous. I'll resume my more traditional carping after we hear from Microsoft (MSFT) on Thursday.

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