Today, investors are going to be bombarded by all the big media outlets with multiple articles about Apple (AAPL, Financial) after the technology giant reported better-than-expected earnings yesterday afternoon.
Top-line breakdown
Total revenue - $84.3 billion
iPhone sales - $52 billion
Mac sales - $7.4 billion
Accessories - $7.3 billion
iPad - $6.7 billion
Services - $10.9 billion
On the bottom line, the company earned over $20 billion or $4.18 a share. More importantly, it now has over $260 billion in cash, which puts Apple’s actual market capitalization after accounting for its net cash position around $580 billion, meaning that the $60 billion it is set to earn in calendar year 2019 looks like the Niagara Falls of value for shareholders at this price point.
Why do you think Warren Buffett was paying up to $225 per share for this stock? Now, the stock is down 30% since its all-time high in early October, and you can buy it for just over $160 a share. It's a bargain hunter's bargain.
To be fair, there’s no need to think too hard about this one in terms of financial performance. Apple is a powerhouse. The LeBron, Messi and Djokovic of the technology sector. Apple’s Services business could eventually be the main earnings producer with margins over 62%. And, China still holds major long-term potential for the company if it can get the iPhone’s price point down.
As for Buffett’s position, the majority of it was accumulated in the $143 to $169 range, but now the stock makes up 25% of Berkshire Hathaway’s entire stock portfolio. Apple investors like Buffett should be enthusiastic about its future.
The phone is now the computer, television and radio. That’s not likely to change, so while the current management team looks more focused on squeezing profits, the company will need to innovate, profitably. Thankfully, there are many possibilities to turn old into new and take major leaps forward even if all Apple does is acquire those organizations with its massive pile of cash.
In 2019, Apple is expected to earn over $13 a share, which could be higher if there’s a hardware release that “wows” fans. With a 15x multiple, that would price the stock north of $200 a share, good for a 25% gain -- the actual gain that could be even better considering how beaten down the stock has been from the fourth quarter of 2018.
Disclosure: I am not long or short Apple.
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Warren Buffett’s Apple Rises on Strong 1st-Quarter Service Revenue
