Apple Investor Weekly works to curate some of the more relevant articles and information related to the company’s financial outlook. This week it contains information on Tim Cook becoming the lead independent director at Nike, the iPhone coming under pressure in Japan, the iPhone SE leading Morgan Stanley to decrease EPS estimates and Cowen projecting that the larger percentage of older iPhones will help iPhone sales. With Friday’s closing price of $95.89 the shares were up for the week ($2.49 or 2.7%), slightly underperforming the S&P 500 which was up 3.2% and the NASDAQ’s result of 3.3%. For the June quarter Apple’s stock dropped just over $13 or 12.3%. For the first six months this year it is down $9.66 or 9.2%. (Note that I own Apple shares).
Tim Cook named lead independent Nike director
Nike announced that Tim Cook, who has been on the company’s Board since 2005, would become its lead independent director. Cook is also the chair of the Board’s Compensation Committee and is a member of its Nominating & Corporate Governance Committee. He has also been a director of The National Football Foundation & College Hall of Fame, Inc. since February 2010, has been on the advisory board of Tsinghua University School of Economics and Management since October 2013 and on the board of trustees of Duke University since July 2015.
The biggest question is Cook stretching himself too thin. It is worthwhile to be on at least one other company's Board to provide additional business perspectives and his other three Board positions are with non-profits which hopefully don’t take as much time.
Apple’s iPhone business in Japan could come under pressure
As can been in the chart below iPhones in Japan cost more than in the US, UK or Germany. Steve Milunovich at UBS believes that there are a number of factors that could negatively impact Apple’s revenue and margins in Japan (which are the highest of any of the company’s geographies at 45%) in the near future. These include pressure from the government to lower monthly phone charges which has led carriers to decrease the upfront subsidy, cheaper smartphones making inroads and longer upgrade cycles as MVNOs (Mobile Virtual Network Operators) allow a user to replace a SIM card and get substantially lower monthly rates.
Morgan Stanley slightly lowered its EPS estimates
Katy Huberty at Morgan Stanley expects June quarter iPhone sales to be around 40 million, which is what the Street is forecasting. She believes that the iPhone SE’s margin is not as low as analysts are projecting but that a higher mix of SE’s in the September quarter are leading her to lower her fiscal 2016 EPS estimate from $8.25 (what the sell-side analysts are currently modeling) to $8.20. Huberty also lowered her fiscal 2017 EPS estimate from $8.78 to $8.55 and fiscal 2018 from $10.19 to $10.00.
Huberty’s AlphaWise Tracker projection has been off by 10% to 11.5% in five of the past six quarters with three being too high and two being too low. On average it would have worked out but there do seem to be some kinks on the survey.
Cowen looking for a Powder Keg upgrade cycle starting in 2017
Timothy Arcuri at Cowen estimates that the iPhone 7 sales should be about the same as the iPhone 6S with a projected 75 million units through December. One of his data points supporting this is his supply chain work but that a combination of Brexit related demand risk and recent strength in the dollar shows that the Street’s calendar 2016 and fiscal 2017 EPS estimates are about 1% to 3% too high. However he forecasts that the iPhone install base that is two years or older should increase from 33% (where it has been for 6 quarter) to 43% in the next 4 to 5 quarters. This could lead to an upgrade super-cycle when new iPhones are introduced in 2017.
In the chart below the black vertical bar is the install base of the total number of iPhones, the shorter blue bar is the number of iPhones that are older than 2 years and the blue line at the top of the graph is the percentage of iPhones that are 2 years or older. If Arcuri’s estimates are correct there is validity that the larger number of older iPhones could help offset the longer replacement cycles that are becoming apparent.
Stock’s valuation
At a closing price of $95.89 the shares are at a PE multiple of 11.6x on fiscal 2016 EPS of $8.25 and 10.6x on fiscal 2017 EPS of $9.01. Over the past seven weeks the analyst’s EPS estimate for fiscal 2016 has dropped from $8.28 to $8.25 and fiscal 2017 has moved from $9.15 to $9.01. When you take into account my estimate of $19 in excess cash per share the PE multiples become 9.03x and 8.5x.
Apple 3 year chart
StockCharts.com shows the shares came close to its 50 day moving average (blue line) four weeks ago and have been tracking downwards since then. Both of its overbought/oversold indicators have moved back to Neutral readings after the bounce back from the Brexit hit. Its RSI (Relative Strength Index, the top third of the chart) is at 47.68 (last week was 35.08) and its MACD (Moving Average Convergence Divergence, the bottom third of the chart) is at -1.713 (last week was -4.576). 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
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.
Apple Investor Weekly strives to compile some of the most relevant and interesting investor oriented news. You can find last week’s Weekly here.
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