The big news this week for Apple was Warren Buffett’s Berkshire Hathaway disclosing that it had bought over $1 billion in the company’s shares in the March quarter and Tim Cook spending five days in India. For the stock it broke a four week losing streak by rising $4.70, or 5.2%, to $95.22. The week’s biggest move was on Monday when the stock increased by over $3 when Berkshire Hathaway’s purchase came to light. For the week the shares were stronger than the overall market increasing 5.2% vs. the S&P 500 up 0.3% and the NASDAQ’s increase of 1.1%. (Note that I own Apple shares).
Stock finding support in the low $90’s
With Friday’s closing price of $95.22 the stock has bounced above the August 7, 2014, close of $94.48, the August 24, 2015, intra-day low of $92.00, the recent February 11 close of $93.70 and last week’s closing low of $90.34. The stock has found some technical support in the low-$90’s and regained the largest market capitalization vs. Alphabet/Google with the increase for the week.
Bernstein’s R&D, acquisition and capital return analysis
Toni Sacconaghi, Bernstein’s Apple analyst, wrote a note analyzing the company’s R&D spending, acquisitions and gross margins. While he found that it spent much less than other tech companies on R&D as a percent of revenue (3.6% vs. 9%) and acquisitions as a percent of free cash flow (2% vs. 25%) Apple has been able to retain 29% of its free cash flow on its balance sheet vs. a cash drain of about 10% for the median of the 30 largest tech companies over the past four years.
The company’s cash return has been slightly higher by returning 18% of its free cash flow in dividends vs. 11% for the top 30 tech companies and 51% in buybacks vs. 49% for the other tech companies.
Surveys indicate consumers delaying iPhone purchases ahead of iPhone 7
Canaccord Genuity’s Apple analyst, Michael Walkley, survey work showed that consumers were delaying purchases of new iPhones ahead of the model 7 expected in September. He believes that the iPhone's US market share could fall below 50% in the June quarter but that it will pick back up when the iPhone 7 is launched.
Walkley believes “the iPhone 6 and iPhone 6s products have enabled Apple to materially increase its share and installed base of the premium tier smartphone market with Android users switching to the iPhone. We believe the iPhone installed base exceeded 500 million at the end of 2015 and overall connected Apple devices exceed 1 billion users. This impressive installed base should drive strong future iPhone replacement sales and earnings, as well as cash flow generation to fund strong long-term capital returns programs”.
Citi is looking farther out
Jim Suva, Citi’s Apple analyst, believes that the company’s stock has been under pressure due to lowered iPhone unit growth and gross margins, especially in a period of slowing smartphone growth. He expects gross margins to improve in the September and December quarters but that the shares will be range bound near term. He thinks investors will soon start to look beyond the near-term stock price weakness and focus on the iPhone 7 launch and that large countries such as India and newer markets will allow its install base to grow.
Tim Cook a rock star in India
Apple’s Tim Cook spent five days in India which included visits with the country’s Prime Minister Narendra Modi, various celebrities and application developers. During the visit the company announced a new iOS App design and development center in Bengaluru and a new office in Hyderabad that will focus on Maps that could create up to 4,000 jobs. For a collection of video’s of Cook’s visit here is an assortment courtesy of Apple 3.0.
Kantar data showing strong Android growth
Kantar Worldpanel ComTech published its March data (note that the numbers are a three month rolling average) and found “the latest smartphone OS data for the three months ending March 2016 shows Android continuing to grow sales across the EU5 (Great Britain, Germany, France, Italy, and Spain), US, and Urban China. There were solid gains in the EU5 up 7.1% points to 75.6%. In the US, Android share increased 7.3% points to 65.5%, and in China, it rose nearly 6% points to over 77%.”
“This is the strongest growth for Android across the EU5 in more than two years,” said Lauren Guenveur, mobile analyst for Kantar Worldpanel ComTech. “What’s more, the growth is coming not just from one or two players, but from different brands and ecosystems, varying from region to region.”
It will be interesting to see if Apple’s iPhone SE can at least slow down if not halt Android’s gains which are partially due to the typical lull six months post the newest iPhone’s.
China Mobile, China Telecom and China Unicom released April subscriber data
China Mobile’s 14.9 million new 4G subscribers in April was the lowest number added since April a year ago. Combined with the largest decrease in its 3G customer base since December the 7.9 million net 3G/4G users was the lowest since last April’s 4.6 million net users and down from a peak of 19.0 million two months ago.
China Telecom and China Unicom also experienced slower 4G user growth but not nearly to the degree as China Unicom. While I have not been able to find a direct correlation between China Mobile’s or the three companies combined 3G and 4G user numbers and Apple’s China revenue I do believe it is still worthwhile to track how their customer base is growing and changing.
Contactless payments showing strong growth in the United Kingdom
The UK Cards Association published its March data, which showed contactless payments totaled £1.508 billion ($2.2 billion). This is just four months after contactless spending hit £1 billion ($1.45 billion), in November 2015. The £0.5 billion ($730 million) mark came in May last year. One in seven of all card transactions are now contactless, compared to one in 16 a year ago.
Richard Koch, Head of Policy at The UK Cards Association, said: “It took almost eight years for monthly contactless spending to reach half a billion pounds - now it’s grown by the same amount in just four months. This dramatic rise shows that paying with contactless is now second nature for millions of consumers who see it as an alternative to cash.”
While there wasn’t any specific Apple Pay data in the report I believe it is overall positive for the company.
Ewan Spence’s roundup of Apple consumer oriented news
Ewan Spence rounds up the rest of this week's consumer news from Cupertino in Apple Loop here on Forbes with information on iPhone 7 leaks and problems for iOS 9.3.2.
Angela Ahrendts selling shares is actually a bullish indicator
I wrote a Forbes.com post that analyzes Angela Ahrendts “selling” some stock due to the tax implications of her Restricted Stock Units (RSUs) vesting. By holding onto the rest of the shares this is an indicator she is bullish on the stock.
Look who dumped Apple
From Apple 3.0 of the 15 biggest Apple bears, five funds stood out. Like Carl Icahn, they flushed the stock right out of their portfolios. If you wondered where the selling pressure on Apple was coming from last quarter, these funds did their part.
Source: Apple 3.0
Stock’s valuation
At a closing price of $95.22 the shares are at a PE multiple of 11.5x on fiscal 2016 EPS of $8.28 and 10.4x on fiscal 2017 EPS of $9.15. When you take into account my estimate of Apple's excess cash of $19 per share the PE multiples become 9.2x and 8.3x.
Apple 3 year chart. Staying above support level.
StockCharts.com shows the shares are holding above the low $90’s support level and that they are in a slightly oversold position based on its RSI (Relative Strength Index, the top third of the chart) of 44.56 (last week was 23.99) and on its MACD (Moving Average Convergence Divergence, the bottom third of the chart) of -3.817 (last week was -9.566). As you can see from the changes in the RSI and MACD these can move quickly which means these are short-term indicators.
Source: StockCharts.com
Apple Investor Weekly strives to compile some of the most relevant and interesting investor oriented news. You can find last week’s Weekly here.
