Image Source: Valuentum
By Brian Nelson, CFA
On January 27, 2022, Apple Inc. (AAPL) put up one of the best quarters by any company in history and a record for the Cupertino-based iPhone-making giant. Revenue for the quarter ending December 25, 2021, of $123.9 billion advanced 11% on a year-over-year basis, while quarterly earnings per share came in at $2.10. The top line beat expectations by more than $5 billion, even with supply chain hurdles, and the bottom-line beat of $0.20 per share was more than 10%, a huge delta considering the size of the company.
We’re viewing the report very positively, and we think the strong performance may ease some broader market concerns. Apple’s gross and operating margins looked healthy, and only performance in its iPad division came in a bit light, but this was almost entirely driven by supply chain issues. Apple generated a solid $19.5 billion in revenue from its ‘Services’ division during the period, up from $15.8 billion in the year-ago quarter, showcasing its ever-growing and “sticky” installed base.
For the three months ended December 25, 2021, cash flow from operations leapt to $47 billion from $38.8 billion in the year-ago period, while capital spending fell to $2.8 billion from $3.5 billion in last year’s quarter. Apple’s traditional free cash flow generation is simply incredible! The company ended the quarter with $202.6 billion in total cash and marketable securities versus $122.8 billion in term debt and commercial paper, good for a solid net cash position. Apple’s tremendous free cash flow generation and huge net cash position support our cash-based intrinsic value estimate.
Image Source: Valuentum
Looking ahead, the market will likely look past any commentary on the conference call given difficult year-over-year comparisons, and we continue to point to the area of large cap growth and big cap tech as the place to be in this volatile market environment. Warren Buffett is a big owner of Apple’s stock, and we continue to be in favor of buybacks at Apple, too, even at these price levels. Though Apple’s market capitalization is sizable, we value shares close to $190 each at the high end of our fair value estimate range. Apple remains one of our favorite ideas in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio.
Apple’s 16-page Stock Report (pdf) >>
Apple’s Dividend Report (pdf) >>
Tickerized for various Apple suppliers.
———-
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.