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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


January 29th 2010 Apple
Nasdaq Symbol: AAPL
Industry: PCs
Price as of 1/29: $192.06

The earning reports keep coming in spectacular. It's amazing how far this economy and market have come in just 10 months. Last March the World was on the verge of collapse, the financial system was down for the count and yet here we are reporting blow out numbers as the economy has officially climbed out of the Great Recession. Unfortunately, even though most companies are reporting great earnings, investors are selling instead of buying. One sector report stellar numbers is the tech sector. A couple of weeks ago, it was Google in the spotlight with the introduction of their phone, the Nexus. This week I will feature the IT stock within the tech sector which could only be Apple. Apple had a busy week reporting great earnings on Monday and then releasing the Apple Ipad on Wednesday, their counter to the Amazon Kindle or Barnes and Noble's Nook. Things couldn't be going any better for Apple as their sales and earnings estimates keep going up, the analyst keep upgrading the stock and yet, like most techs, the stock has pulled back providing a buying opportunity for growth investors.
On Monday, Apple handily beat on top and bottom line and then guided second quarter earnings and sales above consensus. Earnings came in at $3.38 billion or $3.67 per share, $1.60 better than the first call consensus of $2.07. Revenues rose 32% year over year to $15.68 billion verse the $12.06 billion consensus. The top-line and bottom-line figures do not tell the whole story, however. Apple restructured its accounting for the latest quarter and now books sales and profits of its ever popular iPhone when the gadgets are sold rather than spreading out the earnings over the expected life of the phones, as it used to do. Looking at the individual products, Apple reported first quarter Mac sales of 3.36 million verse estimates of 3 million. Mac sales rose 33% year over year. The other sales were less than expected. Apple sold 21 million iPods verse estimates of 22 million, and 8.7 million iPhones verse estimates of 9 million. Apple is usually cautious on the next quarter, but the company was more bullish due in part to the new accounting rules. Apple issued upside guidance for the second quarter seeing earnings of $2.06-2.18 verse $1.77 consensus. For the second quarter, revenue is expected to come in at $11.0-11.4 billion verse $10.37 billion consensus. Gross margins continue to improve rising to 39% verse estimates of 36.8% consensus, but as the year continues the gross margins will evititably come back down. For the rest of 2010 which ends in September and for 2011 earnings, things are looking better due in part to the accounting change. Earnings are now expected to come in at $11 this year and $13 for next year.
Looking at these revised earnings, Apple's stock no longer looks expensive. The stock is trading for 17 times earnings, and just 15 times next years numbers while sales and earnings keep growing at a 20 to 30 percent clip per year. This weeks release of the new Ipad should also keep sales humming. The analysts continue to love the Apple. Oppenheimer raised sales and earnings estimates and then raised their price target to $265 from $255. Broadpoint Amtech raised their target to $264 a share. Citigroup upped their target to $275. These price targets are 40% above the current price which provides good capital appreciation for growth investors. But as we know tech stocks are volatile. Apple is already 10% of its high from two weeks ago. Longer term Apple continues to be the leader of innovation pushing the markets to better and ever more exciting products and devices.