Good morning,

European markets are called to open flat this morning but the Dow is already 1.4% up pre market after Apple reported stellar results. This is what's happening today:

  • The DAX is up 12% year to date after yesterday's recovery and the CAC is flat year to date;
  • Apple closed after hours 8% up at $603.81/share after reporting that profit rose 94% on growing global iphone demand. Apple reported earnings yesterday that almost doubled last quarter, reflecting demand for the iPhone in China;
  • The Federal Reserve will conclude a two-day meeting today;
  • Data may show U.S. demand for durable goods fell last month;
  • Boeing Co., Caterpillar Inc. and Hess Corp. are among U.S. companies scheduled to report results today;
  • Earnings for S&P 500 companies have risen 12% in the first quarter and results beat analysts’ forecasts by 9.4%, according to data compiled by Bloomberg from 145 companies in the index that have reported since April 10;
  • 10-year Italian debt is yielding 5.675%, 10-year Spanish debt is yielding 5.864% and 10-year Portuguese debt is yielding 11.473%;
  • Brent is trading at $118.31/barrel.

Today the markets may open flat in Europe but the Dow is already 1.4% up after Apple's amazing performance yet again. Whilst everybody else is worried about the global slowdown across the globe, Apple rose after reporting that robust demand for the iPhone in China fuelled a 94% surge in quarterly profit, allaying the growth concerns that had sliced the company’s shares by 12% since April 9.

It's ironic how the rest of the world is worried about a slowdown in China and the Chinese are buying more iphones!

Here are Citigroup's comments on Apple just after the results were out:

We remain constructive on AAPL shares following another stellar quarter, and raise our 12-month target to $720. While we continued to see potential near-term volatility around product transitions, especially the potential iPhone 5 introduction in Aug/Sep, we would view any meaningful pull-back as an enhanced buying opportunity given the tremendous momentum in iPhones and iPads (which we have summarized below). We see EPS growth of +52% and +24% during FY12-13, while the shares trade at a compelling ~9x F12E EPS (excluding repatriation tax-effected net cash).

We believe that iPhone momentum will remain strong in CY13 (with an estimated 180M units) thanks to continued upgrades to LTE within the iPhone installed base, continued share gains within China Mobile following introduction of a TD-SCDMA iPhone in 4CQ12, and a healthy capture rate of new smartphone buyers due to iPhone’s lead in design, ease-of-use and third party app availability.

We also see iPads growing rapidly in CY13 at above 30% yoy given rapid consumer adoption of tablets, lower price points ($399 iPad 2), potential expansion of product line-up (ie a lower-end 7-8” SKU), and further penetration into enterprise. Longer term, we believe that iPads (and other tablets) will be viewed more and more as a direct substitute for traditional laptops. This will likely be fueled by rapid growth in tablet-optimized software applications and maturation of cloud storage/sync offerings. Our research suggests that Apple has priced entry-level iPads such that competitors cannot undercut Apple on price and still make money. We therefore believe that Apple will continue to dominate this high growth category for the next several years.


We derive our 12-month target of $720 using P/E and discounted cash flow analyses. The application of a 10x multiple to F12E operating EPS for the four quarters beginning 3FQ13 and the subsequent addition of $119 in repatriation tax-effected net cash per share from the balance sheet yields a fair 12-month value of $696. We believe a target multiple below the historical median is warranted given that growth rates are expected to slow meaningfully in FY13 following a huge iPhone and iPad ramp in FY11 and FY12.

A discounted cash flow analysis assuming 0% growth in free cash flow from 2015-2023, 0% perpetual growth in free cash flow thereafter, a 9.7% cost of equity and a beta of 1.3 also yields a $744 target.

For more information on Apple or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli