The Lato Letter: Volume 1, Issue 12.

The Lato Letter: Volume 1, Issue 12.

Okay, I couldn’t resist writing a comment on the Apple earnings from last night.  After a significant sell-off in the stock over the last two weeks (over 13%) caused by concerns of an earnings miss due to slowing iPhone sales, Apple once again “blew away” the estimates.  Revenues in the quarter were $39.2 billion compared to estimates of $36.8 billion and earnings per share were $12.30 compared to estimates of $10.04.  The company generated cash of $14.0 billion for the quarter, bringing total cash to $110 billion or $118 per share.

The analysts were correct in that iPhone sales did slow in the US during the quarter but they exploded in China leading to revenues of $7.9 billion there during the quarter.  These revenues are three times greater than China’s revenues in the year ago quarter and that is without “new iPad” sales in the quarter and without China’s largest wireless carrier, China Mobile.  Apple is still in talks with China Mobile (see the Unwired View article here) and access to its 650+ million subscribers could fuel even more growth in the quarters ahead.

Another area of future growth that was mentioned several times on the conference call is education.  The lower priced iPad 2 is being marketed aggressively to school boards across North America.  Although relatively small, inroads into this market combined with Apple’s recent initiatives in textbooks provide yet another potentially huge business unit.

I have seen several earnings estimates rise this morning and would guess that consensus estimates for 2012 will soon be $50 or more per share.  Using $50 and backing out the $118 of cash per share, based on the current market price of $615, the stock is trading at a multiple of 10 times this year’s earnings. Still very much a buy.

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