Apple Inc. (NASDAQ:AAPL) shares rose after the tech giant reported better than expected earnings. However, shares slid after hours as some investors were disappointed on gross margin concerns. Yet Tim Cook managed to convince some investors/analysts. ‘Apple Guru’ Gene Munster is out with a post earnings report in which he states that his ‘thesis on Apple Inc. (NASDAQ:AAPL) remains intact as CEO Tim Cook stated during the company’s March earnings call that the company is looking at new product categories and has exciting product launches planned for the fall and throughout 2014.’
Munster notes that the announced additional $50B in share repurchases (using debt) was at the high end of buy side expectations. Additionally, he expects many analysts on the Street to re-set forward expectations to adjust for lower core iPhone growth. As we approach these product launches, paired with re-set numbers, Munster still believes that AAPL shares can trade higher through the back half of 2013. Further details from the Piper Jaffray tech analyst below:
March Quarter Results Overview
Apple Inc. (NASDAQ:AAPL) reported March quarter revenue of $43.6B vs the Street at $42.3B and guidance of $41-43B. The company reported EPS of $10.09 vs the Street at $9.98. Gross margins were 37.5% compared to guidance for 37.5-38.5%. The company guided June revenue to $33.5-35.5B, compared to Piper expectations for guidance of $34-36B. Apple guided gross margins to 36-37%, which was below Piper’s target of 37-38%.
Four Things That Have Changed Munster’s Thinking On AAPL
1. Reasons For Changes To Estimate For CY14 & CY15. Munster is reducing revenue ests ~3% to reflect core iPhone (excluding cheaper phone) unit growth of ~4% vs. 6% previously. This is driven by slower growth expectations of the high end smart phone market. Munster lowered gross margins by 30bps-50bps to factor in higher component prices and a 3% reduction in iPhone ASPs due to competition. Lower end iPhone and iPad ests are unchanged. The increased the mix of iPad Mini has been changed from 50% to 60%.
2. Share Back Offsets More Conservative Estimates. Munster believes the share buy-back plan will reduce shares outstanding by 12% (or 110m), through the end of 2015. This assumes an incremental $55B in debt for repurchase ($2B already done) at an average share price of $500. He is using $55B for the model instead of the $58B remaining to be conservative. The effective of the buy-back is that EPS estimates are unchanged in 2014 despite reducing revenue by 2% and decreasing gross margin by 40bps, and go up by 7% in 2015 despite lowering revenue by 1% and gross margin by 30bps.
3. Shifting Timing Of New Products From Sept. To Dec. Shares of Apple Inc. (NASDAQ:AAPL) gave back after-hour gains as on Apple Inc. (NASDAQ:AAPL)’s earnings call Tim Cook noted to expect new products this fall and throughout 2014. Munster had expected the 5S in the month of June and cheaper iPhone in the September quarter. While the iPhone 5S could ship in the Sept-13 quarter, he is modeling for it to be released in the Dec-13 quarter.