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Good morning,
Markets are called to open lower this morning. This is what's happening today:
Not a good day for the markets today after Apple and Amazon missed estimates and S&P cut the rating of French Banks. Here are more details on all three issues concerning the markets today.
Apple
The results were good they were not bad. The miss in margins is acceptable because IT ALWAYS HAPPENS before they issue new products. Lets start off with the iphone 5. The markets were really worried about demand for this phone because of the initial reported problems. However, Tim Cook yesterday confirmed that demand for the phone is exceptionally strong. In fact 26.9mln iphones were sold before results were out compared to expectations of 25.4mln. BUT you have to appreciate that for Q412 the iphone was on sale for only 10 days! In fact the iphone 5 was only available in 9 countries when they started selling the phone on Sept. 21 and increased another 22 countries on September 28. By the end of the December quarter, Apple believes the iphone 5 will have launched in 100 countries with 240 carriers.
Then there is the slowdown in the sales of the ipad. Apple shipped out 14mln compared to the markets expectations of 17.3mln. And this is also exceptable because the markets were expecting the launch of the new ipad and the mini ipad. This is the same story we hear year after year. Sales slow down in one quarter because a new product is coming out and make up for the sales in the following quarter. Infact, Barclays are expecting ipad sales to increase 51% in the December quarter comparing qoq.
The Mac is doing well and now Apple just launched a new iMac. Barclays strongly believes that iPhones and iPads drive a halo effect, making more customers opt for the Mac in order to complete their digital ecosystem.
But the bottom line is all about margins. Because Apple launched its new products this quarter and there was a obvious slowdown in sales in the previous quarter, Apple reported a gross margin of 40% when the market was expecting 40.8%. However, Barclays are expecting margins to improve in the December quarter and long term EPS estimates are largely maintained as demand remains intact.
But there's more! Apple announced plans to ultilize its growing cash pile with a new dividend and share repurchase program. The company declared a cash dividend of $2.65 per share that would be payable on November 12, 2012. The buyback authorization for $10bln is expected to be executed over three years primarily to neitralize the impact of dilution from future employee equity grants and employee stock purchase programs. Combined, Apple expects the new programs to utilize about $45bln in the first 3 years.
Barclays maintain their price target of $800 because they believe that Apple can demonstrate upside to top line estimates and realize gross margin expansion from current levels. This target applies a P/E multiple of about 13x on 2014 earnings.
Amazon
Given what appears to be a modest revenue slowdown, coupled with a lack of visibility around margin expansion, multiple compression is possible for Amazon, which trades at a rich valuation versus peers.
Main points from Results:
S&P Downgrades French Banks (Extract from the Financial Times)
The loss of France’s long-cherished triple A sovereign debt status spilt over into its banking sector on Tuesday as Standard & Poor’s cut its long-term ratings for Société Générale and Crédit Agricole, two of the country’s top three banks.
Shares in the two banks tumbled as they were downgraded by one notch from A plus to A and placed on a stable outlook, along with smaller rival BCPE.
S&P said: “The downgrade of some of these banks follows the downgrade of France to AA plus and factors in the relationship under our criteria of our ratings on systematically important banks to sovereign ratings, as well as our assessment of their standalone credit profile
Stock to watch: Eutelsat Communications (Price E24.34, Price Target E30)
Barclays Research: After disappointments at the 3Q and FY results, there is relief in a more familiar set of Eutelsat results – a modest beat vs consensus and guidance reiterated. We believe that a series of solid quarters is required to rebuild confidence and to support a rerating for the shares. So this is a decent start. We leave EPS forecasts broadly unchanged, although we tweak down revenues due to FX. We reiterate our Overweight rating, with an unchanged €30 price target. We see Eutelsat as a rerating story as they rebuild confidence through the launch of new satellites, a return to growth at Multi-Usage and KA-SAT revenues starting to come through.
For further information on Eutelsat Communications or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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