On Wednesday, Apple reported that its blockbuster 2020 holiday quarter (fiscal Q121) broke nearly every one of its financial records, however the company did not offer guidance for Q221 due to COVID-19 lockdown uncertainties. Revenue of $111.4 billion, up 21% from last year and $8 billion more than analysts had expected, was a record. Profits of $28.8 billion, up 29%, was also a record, as were the sales totals in every geographic region and in most product categories. And, yet, Apple’s stock price dropped.
Our opinion for a base case $200 AAPL share price in two years remains unchanged. Given this view is based on a two-year outlook, we’re shifting our methodology to our FY23 earnings number, which we currently estimate to be $5.75. A year from now, investors will be factoring in 2023 expectations; therefore, we feel our valuation logic is appropriate.
Apple has outlined a goal to be net cash neutral over time, suggesting that total cash will eventually equal debt. This is good news for investors—they can expect in the years ahead an additional $84B in cash will be returned through buybacks and dividends or otherwise strategically deployed. Some of that cash has already been committed to investors through the company’s capital return program. The challenge is that the company is generating so much net income, particularly in a holiday quarter, that the road to net cash neutral is long and slow. They can’t get rid of it fast enough. In the end, Apple has a good problem when it comes to cash—a gravy train of cash returning to investors, which is not fully appreciated.
We applaud Apple as it navigates historic challenges facing the business, its employees, its customers, and society at large. In the face of these challenges, Apple’s business is accelerating. The company has positioned itself to benefit from the accelerating digital transformation currently underway.
MacDailyNews Take: There’s tons more in the – recommended – full article.