Daily Management Review

Despite Muted Outlook, Apple Shares Rise after Reporting Of Strong Prices Of iPhones And Cash Plans


02/02/2018




Despite Muted Outlook, Apple Shares Rise after Reporting Of Strong Prices Of iPhones And Cash Plans
Despite the fact that Apple Inc. delivered not so encouraging revenue outlook for the current quarter, concerns of investors were eased after the world’s biggest technology company hinted that it could give back over half of its $285 billion in cash reserves and after reports of stronger iPhone prices.
 
Compared to Wall Street expectations, lesser number of iPhones were sold during the holiday quarter, Apple also reported.
 
But Jun Zhang of Rosenblatt Securities Inc. said that the outlook on revenue for the first three months of 2018 “was not as bad as some feared”. There was a rise of 3.3 per cent in the share prices of Apple in after-the-bell trading after the company’s comments on the intention of the company about the $163 billion in net cash.
 
“Over time, we are trying to target a capital structure that is approximately net neutral. We will have approximately the same level of cash and debt on the balance sheet,” Apple’s chief financial officer, Luca Maestri, said.
 
“We’re going to take that balance down from $163 billion to zero,” Maestri said, referring to Apple’s current level of cash net of debt.
 
However, there was no specification about whether the lowering of net cash would be made through acquisition or capital expenditures or returning of capital to shareholders.
 
Brian Colello, an analyst at Morningstar Inc, said that the cash plans are a “pleasant surprise”. “This goes a bit against Apple’s historically conservative capital structure.”
 
It was good news that the company was planning a move to create a level balance sheet, said Trip Miller, managing partner at Gullane Capital Partners and an Apple investor. “Let’s face it, this cash has been doing nothing for us over the last six years,” he said.
 
For the first quarter ending in March, gross margins of between 38 percent and 38.5 percent and revenue of $60 billion to $62 billion were forecast by Apple. The market expected a revenue forecast of $65.7 billion and a gross margin of 38.9 percent for the same quarter.
 
After a number of “credible reports” that parts orders had been cut by Apple, there were some analysts and investors who were anticipating a low revenue forecast according to Thrivent Financial analyst Peter Karazeris.
 
“I’m happy we’ve gotten the bad news that I was expecting guided into the stock. It was probably a little overbaked,” he said. “Now we’re focusing on metrics that really matter like free-cash generation and shareholder returns.” Thrivent holds Apple shares.
 
For the quarter ended December 30, the market had expected average selling prices for the iPhone to be around $756 while Apple reported the value at $796 and this was a bright spot for the period. This strong pricing was instrumental in Apple being able to cover up the drop in unit sale for iPhones for the period at 77.3 million units compared to market estimates of 80 million.
 
 “It was really driven by the success of the iPhone X and also the iPhone 8 and iPhone 8 Plus,” Maestri said about the ricing strength. “The new lineup has done incredibly well.”
 
“That’s something to watch as we roll further into 2018,” said Miller of Gullane Capital. “Does that continue to stagnate, or was that a one-time bump in the road?”
 
(Source:www.reuters.com)






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