|Market Growth LT||A+|
|Market Growth ST||D|
Mixed Growth Record Based on Company's Recent Reports Suggest Investors Use Caution in Buying the Stock
Apple, had total revenue of $169.07 billion in the 12 months ended last quarter, an outstanding increase of 256.86% from the same period ended three years earlier, in which it recorded $47.38 billion in total sales. During more recent quarters the company has continued to grow its revenue at a similar rate, which suggests it might be taking market share from rivals. It booked total sales of $43.76 billion last quarter, 12.11% more than what it sold in the same quarter a year ago. It will important to monitor the company's next few quarterly results closely for signs of any slowdown in such remarkable top line growth and to determine if this sales momentum being carried through to the company's bottom line. It also reported a yearly drop in profit during the last quarter from the year earlier period, a sudden reversal from the strong profit growth the company has been posting on a long term basis. MarketGrader measures long term profit growth by comparing the latest full year profit (12-month trailing) to the equivalent period's results three years earlier. Apple,'s First quarter net fell -17.85% to $9.55 billion from the year earlier profit of $11.62 billion (excluding extraordinary items) , which contrasts with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the company's profit grew to $39.67 billion for the 12 months ended March 31, 2013, a 324.48% jump from full year profit of $9.35 billion reported for the period ended three years earlier. The company's ongoing margin contraction accelerated during its most recent quarter in which its EBITDA, operating and net margins fell an average of -12.06% from the year earlier period.
The company's stock rose a moderate 0.55% after it reported earnings on April 24, 2013 that were 1.10% higher than what analysts were expecting. This report continues a remarkable trend of beating analysts' estimates consistently, having exceeded them by an average of 8.60% in the last six reports.
|Price/Cash Flow Ratio||A+|
The Stock's Valuation is Attractive Based on the Company's Overall Financial Strength
Trading currently at 10.37 times trailing 12-month earnings per share, Apple,'s stock is priced inexpensively relative to its EPS growth rate in the last two years. Our indicator looks at the 12-month period ended in each quarter within the last two years and calculates the company's annualized growth rate, which is then used to compute the stock's "optimum" P/E. Based on this analysis, Apple,'s earnings per share have grown strongly at an annualized rate of 41.30%. which translates into an optimum P/E ratio of 41.75, 87.10% higher than where the stock trades now. This growth has resulted in strong financial performance, evidenced by the company's Profitability grade. For this to continue, it must reverse its recent margin slide soon. The stock also trades at 5.38 times forward earnings estimates for the next four quarters, lower than its trailing P/E and the S&P 500 index's forward P/E of 15.20. By placing a lower multiple on the company's future earnings than it does on the market as a whole, investors may see the company as financially strong but with relatively poor growth prospects. This may offer a valuable opportunity for patient investors willing to wait for future earnings reports.
Apple,'s current market value is 3.15 times its tangible book value, which excludes intangible assets such as goodwill; this valuation seems attractive, especially considering that only 4.09% of the company's total stockholders' equity is based on intangible assets. When the value of those assets is added back into total book value, the price to book ratio is an even lower 3.02. Based on the $58.41 in cash flow per share generated by the company in the last twelve months, at the current price of $433.26 the stock trades at 7.42 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its shares also trade at 2.41 times its trailing 12-month sales, a small 57.10% discount to the Computer Processing Hardware industry average price to sales ratio of 1.53. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. From that perspective Apple,'s $406.68 billion market cap seems pretty rich, 36.18 times higher than the net income (plus depreciation) it reported in its latest quarter.
|Return on Equity||A|
|Quality of Revenues||A+|
Company's Profitability Is Remarkable, Reflective of Excellent Operating Conditions and Strong Management
Apple, is a very profitable company with strong overall indicators in this section of our analysis. The company's different measures of return to shareholders and margins are typically above those of its peers. In the last four quarters Apple, earned a profit of $39.67 billion, equivalent to 23.46% of its sales in the period. The average operating margin for the Computer Processing Hardware industry was 7.10% during the same period, 328.17% below the company's 30.90%. Based on how much it has earned in the last four quarters, the return on Apple,'s common equity has been a remarkable 29.28% during this time, even though this is below the 37.68% return on equity achieved in the year-earlier period. This metric plays an important role in how our system measures a company's management efficiency.
In spite of this recent downturn and given the still-strong performance by the company its leverage has plenty of room to grow considering Apple, has no debt at all. Apple,'s core earnings in the last twelve months grew moderately from the twelve months ended a year earlier. The company's EBITDA for the most recent period was $58.34 billion, or 7.88% above the $54.08 billion earned from its core operations in the prior period. EBITDA is used by MarketGrader to measure the company's true earnings power since it includes interest expenses, income taxes, depreciation and amortization, all non-operating expenses, which are nevertheless accounted for in other parts of our analysis that look at EPS gains and net income.
|Cash Flow Growth||D|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Company's Cash Flow Is Very Well Managed as Our Analysis Reflects a Very Healthy Operation
Apple,'s cash flow declined significantly last quarter to $12.50 billion, 10.54% lower than the year earlier quarterly cash flow of $13.98 billion. What's more important and worth highlighting is the fact that up to the most recent quarter the company's twelve month trailing cash flow was growing very healthily, up 4.12% compared to the same period ended a year before. This marks a sharp slowdown in the company's business environment and is likely to put considerable pressure on its margins. The company clearly has very strong liquidity having no debt to finance, $39.14 billion in cash on hand as of last quarter and a business that generated $28.54 billion in earnings before interest, taxes, depreciation and amortization in the same period. This affords it significant flexibility to take on debt if it wanted to pursue new growth opportunities such as an acquisition. The company had $39.14 billion in cash on hand last quarter compared to $28.54 billion a year earlier, a 37.14% increase. It continues to have no debt.
Our Economic Value indicator measures the company's ability to generate a true economic profit by taking into account not only the costs of running the business but also the cost of capital. In Apple,'s case, since the company has no debt, we only look at the cost of equity, which is to say the opportunity cost to an investor of having his capital tied up in the company's shares instead of some other investment. Based on its 12-month trailing operating income, Apple, generated a 38.56% return on $135.49 billion of invested capital. Since it has no debt this simply includes all forms of equity. Its after tax cost of equity during the last year was 7.86%, which, when deducted from its return on investment results in an economic value added, or EVA, of 30.70%. This is a remarkable return to its shareholders, more than justifying their investment in Apple,'s shares. The company hiked its quarterly common dividend in its latest quarter, reported on December 31, 2012, to 3.05 cents a share from 2.65 cents, a 15.09% increase. It has now been paying dividends regularly since N/A and the stock's current yield is 1.84%. Apple,'s payout ratio--or the percentage of the company's earnings paid out as dividends--saw a large increase last quarter to 26.07%, compared to 17.88% in the 12 months ended just a quarter earlier. The $10.34 billion paid out in dividends on the last year also represent 18.71% of the company's cash flow. While this latest increase is considerable, the overall payout ratio is still moderate and doesn't risk damaging the company's balance sheet since its fundamentals are generally healthy.