More than a decade ago, when the tech boom was going gangbusters, “growth is the new income” was echoing across Wall Street. But now those tech titans are now considering how income incorporates into tech, writes Chad Fraser of Investing Daily.
In the wake of the latest earnings from Apple (AAPL), Benzinga.com’s Gordon Wilcox wrote the following: “It might be par for the course with Apple, but investors certainly still enjoy seeing the maker of iPhones and iPads crush Wall Street estimates come earnings time.”
So they did last Wednesday, sending the shares up 6.2% to around $446.66, in the wake of the company’s latest earnings report. Here’s what had investors in such a good mood:
In its fiscal 2012 first quarter, which ended December 31, Apple’s sales soared 73.3% from a year ago, hitting a record $46.33 billion. Profits also set a record, more than doubling to $13.06 billion, or $13.87 per diluted share, from $6 billion, or $6.43 a share.
The latest results, of course, were far ahead of the Street’s expectation of $10.15 a share in profits on $39 billion of sales.
Other eye-catching figures in the report: Apple sold 37.04 million iPhones in the quarter, up 128% from a year ago, along with 15.43 million iPads (up 111%) and 5.2 million Mac computers (for a gain of 26%).
The stellar earnings come just months after the death of the company’s visionary founder, Steve Jobs, in October. Investing Daily editor Roger Conrad pointed out at the time that Jobs’ death does cast something of a shadow over the longer-term future of Apple. However, his products remain the cornerstone of the company’s success:
“At least for now, the company does have what are widely regarded as the highest quality products on the market, from the iPhone to the iPad and iMac. In a word, they’ve made the Internet and wireless communications fun—and made a lot of money in the process.”
Huge Cash Hoard Prompts Dividend Speculation
Conrad also pointed out that one ingredient Apple is currently missing is a dividend. However, in light of the strong earnings report, which also included the fact that Apple generated $17.5 billion of cash flow in the quarter, some analysts thought that might soon change.
One analyst who sees a dividend on the horizon is Canaccord Genuity’s Michael Walkley. In a research note quoted on wsj.com, he wrote: “We anticipate another year of record cash generation. With Apple expected to cross $100 billion in cash [holdings] during the March quarter, we believe this milestone might push Apple to announce a dividend.” Walkley also raised his price target on the stock to $650 from $560.
Some analysts thought there were better ways for Apple to spend its money, however. For example, in an article entitled “3 Reasons Why Apple Shouldn’t Pay a Dividend,” TheStreet.com’s Charles Caccia worried that doing so could hinder the company’s ability to make acquisitions and innovate.
He also points out that Apple’s return on equity (ROE) now stands at 41.67%. That means, in Caccia’s words, “of every dollar Apple invests, it earns 41.67 cents in profit.”
Eric Jackson of Ironfire Capital described the return as phenomenal when compared to those of other tech giants, like Google (GOOG) and Microsoft (MSFT), and that alone makes a strong case against a dividend.
“I think Apple could make the argument that a high ROE is its way of saying it knows what is best for its cash,” says Jackson.
Apple is still a buy.