Home > News & Commentary > Apple Earnings Breakdown and Analysis (AAPL, MSFT)

Apple Earnings Breakdown and Analysis (AAPL, MSFT)

They say that good investing shouldn’t feel good when you do it….

By that logic, Andrew and myself must have made an absolutely amazing investing decision when we wrote our post last week explaining our reasoning behind him selling all of his Apple and me selling 66% of my position.  Not only did we get contacted by Apple’s lawyers about that story, but they decided to rub it in by posting record profitability and having their stock rocket up in after-hours.

Analysts were expecting EPS of $1.42 on average with the whisper number closer to $1.70.  Apple destroyed both numbers with earnings of $1.82. They also trounced the sales numbers across the board; beating on Mac’s, iPhones and even the iPod. Their gross margins actually expanded during the quarter thanks to people upgrading to Leopard (Microsoft might be able to surprise next quarter for similar reasons related to Windows 7).

The one caveat to Apple’s earnings is that their guidance for next quarter was below consensus estimates, however, Apple is known for sandbagging.

This amazing quarter was in line with our thinking that Apple is an exceptional company with impeccable execution. However, I still feel that there is very little or no negativity priced in to the stock  and it is reminiscent of Akamai (AKAM) a couple years ago when everyone “knew” how great of an investment it was (it fell ~30% following an earnings report was only “very good”).

I think 2010 earnings will be between $6-8 and the stock should be fetching a P/E of 20-30. These estimates would imply a price of $120 to $240 with the average being $175. I’d love to make another 20% on Apple but even my average estimate would put me at a 12.5% loss while the low end would represent a 40% drop. The risk/reward ratio is nowhere near as appealing as when Apple was trading below $100 where I was buying and I still feel there are other investments with better ROI at current levels.

I will add to my position if we get to ~$180 and I will be selling the rest of my shares if we approach $225.

-MJB

Disclosure: Long AAPL, RIMM, MSFT

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  1. November 15, 2009 at 10:13 PM

    Hey everyone just wanna say hello and introduce myself!

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