Apple: Q3 Blowout and Stock Split (NASDAQ: AAPL)


Following the bell on Thursday, we received fiscal third quarter results from technology giant Apple (AAPL) for the June ending period. For the past few months, there has been considerable uncertainty about the name, as coronavirus epidemic management has precluded any formal guidance. While the shares had cried out overwhelmingly in this report, a breakout report combined with the announcement of a share split sent the stock to a new high in after-hours trading.

So much for all those concerns about Apple’s revenue decline in the prior year period. As the table below shows, all five major revenue segments showed an increase in their respective Q3 2019 results. Management was actually calling for a decent drop in iPhone revenue, so the 1.7% increase was actually a pleasant surprise. All other segments saw double-digit growth, led by iPad with over 31% and Mac with 22%. Perhaps the only disappointment here was the services segment, which only came around or slightly below most analyst estimates. The dollar value is in millions excluding the amount per share.

(Source: Q3 Earnings Report linked above and Apple IR site, seen here)

Service margins registered a 309 basis point increase, while product margins continued to decline. A setback of more than $ 7 billion on the top line was apparently supposed to filter the income statement. The low tax rate, combined with buybacks, certainly helped EPS figures to come 50 centimeters ahead of the street. Even with several analyst estimates in recent weeks, the report was one of the best things the company has seen.

As most expected, Apple management did not provide any guidance for the fiscal Q4 period ending September. However, it was confirmed that there would be a slight delay in the iPhone launch, meaning that no new phone would be available until mid-October. I’m sure analysts will be racing to raise estimates after this huge Q3 beat, but if expectations go up too much next time, we might look at revenue / earnings next time.

As we look at the stock itself, management slowed the buyback slightly, buying back only $ 16 billion worth of shares. I mentioned in my preview article the possibility that the huge rally might lead to some conservatism. The surprise here was that four were announced for a share split, which would again send the outstanding number of shares too high, but then Apple’s shares would move to around $ 100 or below depending on current prices. . Interestingly enough, Apple will actually lose weight in the Dow Jones Industrial Average (“Dow 30”), as this index is based on the share price.

Apple topped $ 400 after an after-hours session, setting a new all-time high in the process, and there would be a lot of analysts who don’t look good as a result. The stock went above the average price target on Street in this earnings report, with many analysts aiming for the mid-$ 300s. We are definitely seeing a lot of targets following this report, and the share split may lead to some more purchases. While we’ll have to wait a little longer than usual for the next set of iPhone launches, Apple put it to bed this week with any apprehension that the business was actually being hurt by coronoviruses.

Disclosure: I / We do not have a position in any of the stocks mentioned, and there are no plans to initiate any of the positions within the next 72 hours. I wrote this article myself, and it expresses my own opinion. I am not getting compensation for this (other than Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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