Apple Inc. (AAPL) Capital Plan Applauded by David Einhorn – ValueWalk Premium
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Apple Inc. (AAPL) Capital Plan Applauded by David Einhorn

Apple Inc. (AAPL) Capital Plan Applauded by David Einhorn

Apple Inc. (NASDAQ:AAPL)’s revenues and EPS beat expectations while its F3Q13 outlook was below consensus. However, many believe that the weak June outlook was expected and baked in the stock price. The company’s iPhone and iPad units surprised on the upside but its margin performance and outlook indicate that lower end devices are likely growing faster than the higher end devices. Apple Inc. (NASDAQ:AAPL) also expanded its capital allocation program, which will likely make the stock more attractive for value investors.

Revenue and EPS beat expectations

Apple Inc. (NASDAQ:AAPL) reported revenues and EPS of $43.6B and $10.09 vs. consensus of $42.3B and $9.97 and revenue guidance of $41-43B. While the gross margin of 37.5% was below expectations of 38.5%, it was at the low end of management’s outlook of 37.5-38.5%. Operating margin came in at 28.8% vs. consensus of 29.5%.

IPhone and iPad performance much better than feared

Apple Inc. (NASDAQ:AAPL) sold 37M iPhones and 19.5M iPads in the quarter, which compared with consensus of 36M and 18M, respectively. ASPs for iPhones and iPads also came in-line at $613 and $449, respectively. Macs experienced a 2% decline in units while the broader PC market fell by 11-14%. The company’s margin and ASPs indicate that its lower end products continue to do better than higher end devices, while demand for its overall products remains stronger than expected despite more aggressive competition.

For the June quarter, the company’s revenue outlook is in-line with expectations, while EPS is slightly lighter. The company’s guidance calls for revenues of $33.5-35.5B and EPS being ~ $6.66-7.45 versus consensus of $38.6B and $8.97, respectively.

Enhanced capital allocation to appeal to value investors

The company announced a 15% increase to its quarterly dividend and expanded its buyback program to repurchase stock worth $60B from $10B through December 2015. In all, Apple Inc. (NASDAQ:AAPL) plans to return $100B to shareholders by 2015-end. Many investors believe the company’s new capital allocation policy will offer a much-needed incentive to value investors who will find the stock attractive on valuation as well. In F2Q13, Apple repurchased stock worth $2B, inline with F1Q13.

David Einhorn commented:

“We applaud Apple’s decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago. This positive development represents a more shareholder friendly capital allocation policy and demonstrates the conviction of Apple’s management and board in the company’s future.”


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