Apple Inc (AAPL)

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Apple 2012 Q2 Results - 4 Reasons To Be Optimistic

March 12, 2012

Apple (AAPL) is expected to report its fiscal Q2 2012 results the last full week of April. We are just about 3 weeks away from the end of the quarter and this is usually the time the analysts start revising their estimates. This article presents some of the positive catalysts in this quarter so far and arrives at a fair EPS and PPS.

China Telecom: China Telecom (CHA) is the third largest telecom provider in the most populous country. CHA recently started selling iPhone 4s and the pre-orders were of the usual Appl-e-pic proportions. The demand has been greater than expected, with more than 200,000 pre-orders. One may recall CEO Tim Cook's enthusiasm about China sales during Q1 2012 earnings call.

The New iPad: The new iPad was launched on March 7th amidst high expectations. As with any Apple launch, the initial reports weren't so positive. But Philip Elmer-DeWitt, one of the most respected Apple analysts, reports otherwise. Remember, a key factor during 2011 Q4 miss was the launch of iPhone 4s. People waited for 4s to be launched in Q1 2012, affecting the numbers for Q4 2011. But with the new iPad, the news and the launch happened in the same Q2 2012 quarter. In essence, the lost sales in iPad 2 would be more than compensated by the sales of the new iPad.

Kindle "Fired": Though not many see the Kindle Fire as a threat for Apple's iPad, there is no doubt Amazon (AMZN) sells quite a few units that would otherwise go to Apple. But now, with the price cut of iPad2 (available from $399), Kindle Fire's share of the pie should get smaller. Thinking what difference a $100 price cut would make? Check this out and remember, the survey is about non-iPad buyers and 20% is a good number there.

The (100) Billion Dollar Question: This is a cheat and not directly related to Q2 results. However, one of the most positive things to come out this quarter was on the non-product side. Thankfully, Tim Cook and co shot down all questions about meaningless acquisitions with the cash. Tim Cook's handling of the various public appearances (addressing the Foxconn issue in particular) convinces that he is in total command and will lead the company his way, not the way Steve Jobs would have, while retaining Apple's basic culture of "think different". And that is a big relief to the share holders. (Perhaps to Steve Jobs as well)

A look At The Numbers: Analyst estimates for Q2 currently is at 9.48/share and as stated above, the number will likely be revised as we head closer to the results. Going by Apple's last 4 quarters (Simple Moving Average), the company has beaten the estimates by 20% (including the "miss" in Q3). That would give us a Q2 EPS of 11.37 and last 4 quarters EPS of about 40/share. Applying today's fair trailing PE of 15.5; we arrive at $620/share. That is a good 13% gain from Friday's close price of $545.

Although, the technical indicators suggest Apple has been overbought and has been on a parabolic run, the fundamental growth is still incredible and augurs well for the shareholders.

Disclosure: I am long AAPL.

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