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Apple’s ‘Miss’ Shouldn’t Worry Shareholders


Apple (AAPL) stock sank 5% in after-hours trading Tuesday when the company reported a quarterly earnings “miss.” But whether it truly missed depends on whose forecasts we use.

It reported earnings of $9.32 a share excluding one-time items for its third fiscal quarter ended June 30. That’s a 20% increase from a year earlier. It’s also well more than the $8.68 cents a share the company predicted it would earn for the quarter back in April.

It was well short of Wall Street’s consensus estimate of $10.22 a share, however. Likewise, Apple’s revenues of $35 billion, up 23%, beat its own estimate of $34 billion, but not Wall Street’s $38 billion.

That seems more like a case of Wall Street missing, not Apple.

Of course, the important question for shareholders isn’t whether a given forecast proved accurate, but rather, whether Apple shares remain fairly priced relative to the money the company makes.

To determine that, consider that Apple has now reported earnings excluding items of $42.54 a share over the past four quarters. With the stock at $570 in after-hours trading, that makes for a price-to-earnings ratio of 13.4.

Songquan Deng / Shutterstock.com

General Mills (GIS), meanwhile, trades at 14.9 times trailing earnings. The packaged food maker is a good example of the popularity of consumer staples shares at the moment. Investors are willing to pay a premium for steady earners–companies that rarely miss forecasts by much.

Among S&P 500 firms, consumer staples companies trade at a 30% premium to technology firms relative to 2012 earnings estimates.

That’s a big price to pay for earnings stability. Consider: While Apple grew revenues at 23% in its latest quarter, General Mills says it expects mid-single-digit sales growth this year. That’s fine for a food maker, but it speaks to the high price investors are paying for unexciting growth. Also, Apple holds more than 20% of its market value in cash.  General Mills has debt equal to about 30% of its market value.

For Apple stockholders, Tuesday’s earning-report turbulence isn’t a reason to sell. It’s simply the price they pay for owning shares of an attractively priced company with fast-growing but lumpy profits.


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Comments (5 of 14)

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    • Many investors forget that the visionary of Apple Steve Jobs is no longer part of the company which means newer products and services will not be as prevalent. As I have mentioned before Apple stock is a sell. With a major global economic slowdown in the process and the deleveraging of private balance sheets consumers will be slow to spend additional funds on every new product that is introduced.

    • Regarding the $125 in cash, I think the reason that it’s not included is that it’s largely offshore. Bringing it back to the US, where it would affect the share price, would cost a fortune in taxes. It’s better spent where it is.

      Also, while Apple may not be the low cost leader, that they charge a lot for their stuff is not why they’re going to fail (if they fail in any meaningful way).

      Finally, according to its Q2 filing, Apple had sold over 365 million iOS devices, so I’m almost certain that it’s not just sales to hipsters – unless we have a very different definition of the term.

      I’m not going to buy Apple, and I don’t own any now, but the company is far from sunk. It’s figuring out how it operates without Jobs, and that’s going to take some time. It may never grow as it once did, but it’s not going to disappear overnight.

    • like Matthew implied I am taken by surprise that any one able to profit $6824 in four weeks on the computer. did you look at this page (Click on menu Home more information) http://goo.gl/yTkjl

    • Wow…lots of haters in here. Guess AAPL can’t walk and chew gum at the same time without Jobs…right…

    • These worthless writers are about as worthless as the financial mafia in screaming to anyone who will listen, “buy, buy, buy……………….”

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