Talking points on Apple’s lowered guidance for Q1:
· Guidance lowered primarily because of weaker iPhone sales in China.
· Timing is causing concern because of maturing smartphone market (declined in 2017 & 2018).
· Weakness in China may be more macro related than Apple specific. Overall smartphone sales were down 8% in China in Q318 – other indicators of a softening economy (especially with luxury) include commentary from TIF, COH, SBUX, Auto manufacturers and December PMI in contraction. China is the largest market globally for smartphones (about 1/3 of the industry). iPhones sold in China only account for about 12% of Apple’s revenue.
· The last time Apple’s multiple was this low they were experiencing big declines in revenue in China – from 2016-2017 they had 6 consecutive quarters of declines and were losing share.
· Trading at an 8.5% FCF yield implies no growth. Apple has ~$130B in net cash on their balance sheet. That’s about $27/share or 19% of their market cap. They’re trading at about a 12x P/E or closer to 10x ex-cash.
· Goal of net cash neutral means they have ~$300B of cash to spend in the next 3 years or so, which is over 40% of their market cap.
· Apple reports earnings on Jan 29.
$AAPL.US
[category Equity Research]
[tag AAPL]
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109