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Look like a nice guy, ride like a badass
Tim Cook is an unlikely hero. Seems like a nice guy, right? The sweater and all. But beneath the uncle’s friendly routine hides a heart of cold ice. Guy runs an oligopolistic consumer business everyone loves. Lawsuit over App Store overcharges? Noise. Atrocious rate of genuine innovation in their flagship product? Pooh. Nobody cares. Can I get my iPhone 27 in…a kinda funky blue color? Where do I sign? 72 month contract you say? No problem!
Apple the company is a machine, and Cook’s ability to handle the thing without portraying himself as the modern-day equivalent of factory owner in the Heartlands (less) is to his endless credit. The stock has the S&P and Nasdaq on its shoulders and it just printed an excellent set of earnings that can lift the indexes in the weeks and months to come.
We’ve previewed the wins here, if you missed them.
Following today’s earnings printout, here are the numbers, valuation and our latest stock chart with price targets and proposed stop-loss levels.
Let us show you the numbers as we see them.
- More importantly, and unlike every other Big Tech name, revenue growth has accelerated. This quarter was +8% vs. Q4 FY9/21 compared to +2% in Q3 22 vs. Q3 21. Others – your Microsofts (MSFT) for example – generated “beats” in revenue or revenues, i.e. the company exceeded the expectations it had worked hard to mitigate for a few weeks; here, the company actually grew faster compared to the same quarter last year than last quarter. This acceleration in a weak economic environment is indicative of a winning share of the business, ie. gaining share of the consumer dollar. Since the product set is high end and expensive, it tells you that the consumer isn’t as badly off as many make it out to be, and it tells you that AAPL’s sales and marketing execution remains solid.
- Gross margins were essentially flat, ie. the company’s variable input costs relative to revenues remained unchanged. Remember we live in an inflationary environment where everything costs more. And remember that the AAPL is largely a assembler of stuff, hence the low gross margins compared to, say, a software company. Stable gross margins indicate that the company’s purchasing and supplier management is working well.
- Accounting margins – EBITDA in our table above – also remained essentially flat (down 1% on a TTM basis). This means, for example, that wage costs remained tightly contained in the quarter.
- Cash flow margins – unleveraged pre-tax cash flow in our chart above – were also stable on a TTM basis. Capital spending has increased significantly (>50% more than last quarter), but careful working capital management – i.e., collecting cash faster and disbursing cash slower – helped to avoid the increase in capital expenditure cash flow margins. Again, indicative of very strong management here.
If the above sounds easy? This is not the case. Check out most other Big Tech companies to see how not to.
Today, despite the strong growth and margin profile, the valuation remains acceptable from a buyer’s perspective.
We think this is a perfectly sensible buy on fundamentals. Technical data supports fundamental analysis in our view. The chart appears to be setting up an early 1-up, 2-down move into an overall higher 5th wave to end the cycle that started in the 2018 lows.
Here is our latest graph. You can open a full-page version, here.
Very solid fundamentals; valuation acceptable to buyers; technical view on the stock, bullish.
Accordingly, we continue to price Apple Corporation stock at Accumulate, with a minimum bullish target of $185, a bullish bullish target of $215 and a proposed stop-loss zone in the ZIP code of $130, just below from the recent low pivot.
Cestrian Capital Research, Inc – October 27, 2022.