Evercore: Five takeaways from Apple’s 10-Q

From a note to clients by analyst Amit Daryanani that landed on my desktop Wednesday:

ALL YOU NEED TO KNOW:

    1. Off balance sheet purchase commitments were up 21% y/y vs. Mar-20. The increase likely reflects continued strong demand across Apple hardware.
    2. Operating margins were up in every region with the US (+660bps) and Europe (+545bps) recording the strongest y/y increase.
    3. Warranty accruals were down y/y and had a positive gross margin impact of ~130bps.
    4. AAPL returned $22.7B to shareholders in the Mar-qtr, down slightly from the $30.5B returned in the Dec-qtr. Apple’s net cash balance was essentially flat at $83B.
    5. We estimate FX was an ~60bps tailwind to gross margins and there was an additional 30bps benefit to operating margin.

Net/net: Purchase commitments remain elevated, pointing to continued strength that likely spans the entire hardware lineup. Capital returns remain very large and this should not change given the sizable net cash position.

Maintains Outperform rating and $175 target.

My take: At $83 billion, net cash isn’t getting any closer to zero.

11 Comments

  1. Troy Thoman said:
    you would think rather than dollar-cost averaging, that buying shares ASAP is the best long-term plan for shareholders… why by 90 B over the year… buy 90 B today! 🙂

    3
    May 5, 2021
    • Gregg Thurman said:
      SEC won’t let them. AAPL is limited to 5% of each day’s trading volume.

      That said, this doesn’t preclude others,from accruing with the objective of satisfying future structured purchase agreements.

      4
      May 5, 2021
      • Robert Paul Leitao said:
        Gregg: From my reading of SEC guidelines on Rule 10b-18, Apple is limited in its repurchases to 25% of average daily volume. This does not include transactions that occur through private (off-market) purchases.

        1
        May 5, 2021
        • Gregg Thurman said:
          You are correct. Auto-correct doesn’t work on numbers.

          0
          May 6, 2021
    • Fred Stein said:
      Just my guess: Apple has several reasons to buyback slowly. First to prevent a spike and then a fall as the algo traders try to play it. Second, to reserve cash for a black swan or temporary market malfunction. Third to assure shareholders, especially employee shareholders, to hold the stock – to say ‘just hold and trust us to support it.’ Fourth, to minimize the criticism (bogus IMO) of manipulating stock price.

      5
      May 5, 2021
  2. Daniel Epstein said:
    The whole question of what getting to cash neutral means and how Apple intends to get there is pretty complex. Given that interest rates for Apple are so low and interest is usually tax deductible there is a lot of flexibility in the position Apple finds itself in. How are they going to raise and spend the money they have committed to. They had a press release committing to $430 Billion in the US. Over the next 5 years. 86 Billion a year! They must have some idea. Free cash flow and new sales? Seems like a tall order but I think they know what they want to do. If the company can do that, buyback shares, pay a dividend and add 20K employees then Cash neutral seems trivial.

    3
    May 5, 2021
    • David Emery said:
      20k employees at $250k/year (fully burdened, including fringe benefits, etc), is $5 billion. Not chump change, but not a big dent in Apple’s cash flow.

      3
      May 5, 2021
  3. Kirk DeBernardi said:
    Apple is doomed and is priced like a steel mill going out of business…

    …all the way to the bank.

    1
    May 6, 2021
  4. Bart Yee said:
    If Apple had added 1 penny more per quarter ($0.23) to the dividend, instead of a 7.3% raise, it would have been 12.2%. At roughly 16.9B shares, that would be an additional $169M or $676M per annum. With share buybacks incrementally reducing share counts, that would reduce by about 3.5% annually or down to roughly $655M additional expense.

    3
    May 6, 2021

Leave a Reply