Perhaps the most valuable thing investors can learn is that stock prices are determined by future (not past) expectations of a firm’s business fundamentals, and by extension, its future free cash flow stream. The uncertainty of the future–and not the certainty of the past–is what drives stock prices and their volatility (after all, if the future were known with certainty, stocks would trade at precisely their known fair values).
This consideration is important as we evaluate Apple’s (AAPL) fiscal fourth-quarter results, which came in lighter than what the Street had been expecting. Despite the miss, the iPhone-maker guided its fiscal first-quarter above consensus estimates, which should and always will trump any earnings miss as interpreted by the market in the previous quarter. Importantly, the last quarter (Apple’s fiscal fourth quarter) is now behind us, and all that matters is what’s ahead in the future for Apple. And, in Apple’s case, the future is bright. We’re maintaining our $531 fair value estimate.
The iPhone-maker posted quarterly revenue of $28.3 billion and quarterly net profit of $6.6 billion, or $7.05 per diluted share. Compared with last year’s quarter, these numbers represent significant growth in the firm’s top and bottom line. During the period, Apple sold over 17 million iPhones (21% growth), 11.12 million iPads (166% growth), and 4.89 million Macs (26% growth). Much of the disappointment in Apple’s performance was due to a shortfall in iPhone sales which caused roughly a $0.25 bottom-line miss–the Street had been expecting several million more iPhones in terms of unit sales. However, the leak of the launch of the features behind the iPhone 4S ultimately swayed consumers to wait for the upgraded phone. And with Apple selling over 4 million units of the iPhone 4S in a three-to-four day period after the closing of the recently reported quarter, we’re far from concerned about any slowdown in this key profit driver.
Apple’s cash flow generation continues to be robust, and the firm now holds more than $81 billion in cash on its balance sheet. As mentioned above, Apple’s guidance for the first quarter of fiscal 2012 also came in better than expectations, with revenue anticipated at $37 billion and diluted earnings per share of about $9.30. We fully expect Apple to deliver on its guidance for next quarter, but we are watching developments at smartphone makers powered by Google’s Android, as well as developments in the tablet market, which will witness the release of Amazon’s (AMZN) new Kindle Fire in mid-November.