Apple Rallying to 52-Week Highs

Should Apple Really Be Rallying to 52-Week Highs After Earnings?
By Jon C. Ogg July 23, 2014 11:00 am EDT

Apple Inc. (AAPL) feels like its stock is defying history and logic after earnings. The company’s third-quarter report was bland enough that it should have allowed traders and investors a chance to take profits. Yet the stock is rising and has quite amazingly and surprisingly hit new 52-week highs, so we wanted to take a look at what is driving the cart here.

For starters, the earnings report had at least some disappointments. iPad sales were soft, yet Tim Cook said he wasn’t concerned. By our take, international sales were weak as well, with sequential slowing in China, Japan and the rest of Asia being more than expected.

Now consider this. Since Apple’s last earnings report, the stock was already up 27% going into Tuesday’s earnings on a close-to-close basis. It looked as if Apple was priced for perfection and nothing short of that. The stock had peaked just above $97 last week, but even after the seven-for-one split there had hardly been any serious pullbacks. Usually you see some pullback going into or slightly after an effective split date formally enacts a split. Not so here.

One solid metric was that Apple’s margins continued to rise. This is even after Tim Cook was showing strong R&D spending, and Apple has also become an acquirer. The real focus here seems to be that investors are positioning themselves for a very strong iPhone 6 launch later this year. An order for 80 million units of the larger format phone was reported.

As far as all of those old analyst price target hikes, the consensus price target is almost $101, now that analysts have raised and raised their price targets. The latest news from analysts was that the new street-high price target is now $135 for Apple. This is a significant reversal of a company that was considered partly lost as recently as a few months ago.

One driving force is that Apple shares appear to have been under-owned by institutions. Whether or not that remains the case, it seems hard to believe, but Apple’s share performance after earnings was impressive. A gain of nearly 3% to $97.45 (a new 52-week high to boot) in mid-morning trading on Wednesday should speak for itself when many Apple watchers might have expected the stock to see profit taking.

Stay tuned.

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Apple & IBM Partnership

Apple Inc. (AAPL) announced Tuesday of this week that it had signed a global “enterprise mobility” deal with International Business Machines Corp. (IBM). Under the deal, IBM employees will recommend Apple's smartphones and tablets to enterprise customers. The two companies will develop apps geared towards enterprise clients across various industries. IBM stands to get a big boost by selling its software and services to businesses seeking to manage their employees’ Apple devices (either BYOD's or devices to be sold by IBM).

From an Apple standpoint, the move was greeted with some ho-hum attitude by many analysts, who cited the already high market saturation Apple's iOS devices have in the US.

Piper Jaffray analyst Gene Munster led the chorus of shrugs at news of the pact:
"In terms of the benefit to Apple, we do not expect the partnership to have a measurable impact on the model given that Apple has already achieved 98% iOS penetration with Fortune 500 companies and 92% penetration with Global 500 companies,"

However, the fact remains that iOS is on less than half of enterprise devices in some markets, and in iOS's best market Android still commands one of every five mobile business devices.

Jim Edwards, from Business Insider noted:

Once you sell a company on a new device, that company is probably locked in as a customer for years to come, through several device upgrade cycles and all sorts of software add-ons.

If you've ever worked for a company that has forced you to use the worst devices and software you've ever seen, and wondered why that's the case, this is the answer. It's not that your IT department is incompetent. It's that it is genuinely difficult to move thousands of employees off one computing platform and onto another.

Where Apple may stand to gain from this partnership is through IBM's already existing enterprise customer base. Undoubtedly some of those customers will not be using iOS devices yet, and IBM may be able to make headway in getting those customers onto iOS devices. The benefit to Apple being that IBM will handle this with their own global sales force, while Apple sits back and sells the devices.

Will this make a notable difference to the top or bottom line at Apple?

Once again, Piper Jaffray analyst Gene Munster had the following to say:
[It] is unlikely to be the make or break factor for a large corporation in utilizing iOS. We note that if half of the Fortune 500 were to each purchase an incremental 2,000 iPhones and 1,000 iPads above what they were planning to purchase as a result of the IBM deal, it would mean about a half a percent to CY15 revenue.