Apple 2014 1Q Earnings 
Jan. 30, 2014

PictureApple's new gold-colored iPhone 5S
Shares of Apple Computer (NASDAQ: AAPL) tumbled 8% or $44.00 after its earnings release on Jan. 27. Some statistics data did not match consensus estimates and investors pushed the sell bottom while in the panic mode. iPhone sales were weak last quarter, but a record  sale of 51 million v.s. analysts’ estimates of 54.7 million, although its initial sales of new iPhone were set in the world’s largest mobile market, China. 

Otherwise, the number was in fact not too disappointing. The company earned $14.5 per share, beating the consensus estimate of $14.07 ($14.01 a few days before the earnings day). Gross margin was disappointing at 37.9 percent, compared to 38.6 percent a year ago earlier. 

Overall, the investors’ expectations are all about Apple’s new products, such as living room TV sets and wearable devices. If these new products were enough to attract consumers, its revenue stream would gain momentum and possibly improve the margins. 

Earnings estimates for Apple seem not to include the new product story at all and all those expected earnings stream for the rest of year depends mostly on new iPhones, iPads, and Mac products. 

Multiple is hitting low after the earnings at around 12.5. Apple is absolutely one of the cheapest stocks to own in the technology universe. The company can easily increase its earnings by repurchasing its shares throughout the year. With more than 20 percent of cash position of its each share, the buyback is an essential way to play before a new product launches. 

An increase in its dividend payout is very likely again this year, possibly by the mid-summer. I expect the company to increase its amount by 15 percent to above $14 a share from the current $12.2. With huge cash position in its balance sheet, annual dividend increase for next a half decade at least is convincing. Any value investors like this dividend story while compounding dividend income is the way to increase their standard of livings. 

Both an expected dividend increase and the stock buyback surely limit the downside of this stock in the near term. Shares are cheap at around $500 and I plan to hold onto this stock for the remaining year. My target for this stock is at least $585 (I expect 2014 earnings to hit $45 and the multiple increases to around 13-15 depending on new products). 


Akira Kondo is long AAPL.