Apple (AAPL) reported its fiscal third-quarter results after the market close Tuesday, and they were fantastic. The firm’s top- and bottom-lines exceeded both consensus and our expectations, and we continue to believe that there is further upside to the shares. We added them to our Best Ideas List June 17, a trading session before its near-term bottom at about $310 per share. The stock surged to over $400 per share during after-hours trading Tuesday, and we will continue to monitor its trading activity in the coming weeks to see if taking a slice of our position off the table may be warranted. We will update our subscribers before we take any action.
Apple posted quarterly revenue of $28.6 billion and earnings per share of $7.79, both well in excess of consensus (which was about $25 billion in revenue and about $5.87 per share on the bottom line). The company’s gross margin advanced 2.6 percentage points to 41.7% during the quarter, representing solid improvement and easing some rumors about gross-margin pressure. The company sold over 20.3 million iPhones in the quarter (up 142% from the same period a year ago) and about 9.3 million iPads during the period (nearly triple what it sold in last year’s quarter). Unit sales of the iPod declined in the period, but this should be of little concern to investors, as this product is merely being cannibalized by strong sales of the iPhone and iPad, both of which can play music. The iPhone numbers are particularly impressive, given the impending launch later this year of an updated iPhone, which will boast an improved processor and camera. By extension, we view these strong iPhone results as a material negative for Research in Motion (RIMM).
Importantly, the firm’s cash hoard, comprising of ‘cash and cash equivalents,’ ‘short-term marketable securities’, and ‘long-term marketable securites,’ advanced to a total of $76.2 billion, or over $80 per share (about 20% of its total market capitalization). We think this cash hoard provides Apple with increasing flexibility to retain its solid position and impressive trend of constant innovation across all of its major growth engines. The firm’s guidance for its fiscal fourth-quarter in terms of revenue and earnings were less than compelling, but Apple has a tendency of setting the market’s expectations low, and then delivering significant outperformance, which it did this quarter. In all, we maintain our positive view on Apple’s fundamentals.