Following its earnings release yesterday Apple Inc.(NASDAQ: AAPL)’s stock is up well over 5% today. While the company’s earnings seem to be peaking and the market expects a decline in its growth expectations (see our full report), Apple investors can rejoice that the numbers  support a likely dividend increase. Even a share buyback could be justified! Want to know why?

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Apple Inc. (NASDAQ: AAPL) preliminary financial results

Apple Inc.’s earnings release analysis for the quarter ended 2013-06-30 uses the following peer-set:Google Inc (NASDAQ: GOOG), Hewlett-Packard Company (NYSE:HPQ), Dell Inc. (NASDAQ:DELL), Nokia Corporation ADR (NYSE:NOK), Samsung Electronics Co. Ltd. (KOREA: 005930) and Microsoft Corporation (NASDAQ: MSFT). The table below shows the preliminary results.

Quarterly (USD million) 2013-06-30 2013-03-31 2012-12-31 2012-09-30 2012-06-30
Revenues 35,323.0 43,758.0 54,521.0 35,833.0 34,960.0
Revenue Growth % (19.3) (19.7) 52.2 2.5 (10.4)
Net Income 6,900.0 9,547.0 13,078.0 8,223.0 8,824.0
Net Income Growth % (27.7) (27.0) 59.0 (6.8) (24.1)
Net Margin % 19.5 21.8 24.0 22.9 25.2
ROE % (Annualized) 21.3 29.1 42.6 28.6 32.9
ROA % (Annualized) 14.0 19.5 28.1 19.4 22.5

Valuation Drivers

Apple Inc.’s current Price/Book of 3.1 is about median in its peer group. Apple’s operating performance is higher than the median of its chosen peers (ROE of 32.1% compared to the peer median ROE of 17.4%) but the market does not seem to expect higher growth relative to peers (PE of 10.5 compared to peer median of 12.2) but simply to maintain its relatively high rates of return.

The company attempts to achieve high profit margins (currently 22.3% vs. peer median of 12.1%) through differentiated products. It currently operates with peer median asset turns of 0.9x. Apple’s net margin has declined 4.5 percentage points from last year’s high but remains above its five-year average net margin of 20.6.

Fundamentals support a dividend increase for Apple stock (NASDAQ: AAPL)

Apple’s margins and cash flow are good compared to its peers. In addition, the company’s leverage and liquidity ratio suggest the company can easily service its current debt. These factors, along with the company’s relatively low growth expectations and weak share price performance, indicate that the company is in a position to increase its dividend. The high quality dividend and a strong cash cushion (a healthy 5.2x the cash dividend) also seem to support a dividend increase. (Apple passes all 10 conditions for a dividend increase, see the report for details).Apple Inc. (NASDAQ: AAPL) Dividend Increase likely based on assessment

What about the likelihood of a share buyback? Find out with the complete 2-in-1 report!

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