Company / Analytics

Analytics, 04 August 2020

Apple’s Q3 earnings and the upcoming stock split

The last two weeks saw companies release their June quarter earnings reports. The earnings season saw mixed reports which proved to be a true reflection of the real economy; towards the end of the season, US economic data pointed at the steepest contraction of the US economy since the Great Depression in the second quarter. But some big names offered better news. One of these is Apple, which rose to become the world’s most valuable publicly-traded company, passing Saudi Arabia’s state-owned oil company Saudi Aramco.

Background

Apple’s stock, which has been on a largely-steady climb since the end of March, closed up more than 10 percent on Friday following the company’s record-breaking third-quarter earnings on Thursday, ending the day at $425.04. That raised Apple’s market valuation to $1.84 trillion, compared to Saudi Aramco’s $1.76 trillion, according to CNBC.

Apple announced financial results for its fiscal 2020 third quarter ended June 27, 2020. The reports show that the company easily weathered the pandemic in its June quarter. Apple delivered revenue of $59.7 billion that came in comfortably above estimates even from earlier this year before analysts slashed their forecasts to account for closed stores, weaker budgets, and other impacts from COVID-19.

Revenue rose by 11 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.58, up 18 percent. International sales accounted for 60 percent of the quarter’s revenue.

According to analysts, the pandemic seems to be having a limited impact on Apple, and one can argue that the Mac and iPad are benefiting nicely due to the work from home and distance learning trends. Mac revenue rose to $7.1 billion from $5.8 billion, while iPad revenue increased to $6.6 billion from $5 billion. The company expects a strong back-to-school season this year, and additionally, smartphone trends over the next few quarters will help Apple drive recurring cash flows from its loyal customer base, even though Apple confirmed that the next iPhone will be delayed by “a few weeks” compared with last year.

Apple’s 4-for-1 stock split

Alongside its third-quarter results, Apple also made a surprising announcement: that on Aug. 24, the company will execute a 4-for-1 stock split. According to Apple, the stock split is to make the stock available to a large base of shareholders. The stock split will lead to increased demand for the stock because of its lower price after the split.

The upcoming stock split will be it’s fifth since going public. Apple split its stock on a 2-for-1 basis in 1987, 2000, and 2005. Then it split its stock on a 7-for-1 basis in 2014. Its 2020 split will occur on a 4-for-1 basis, meaning every investor will receive four shares for every one share they own. Those shares will each be equal to one-fourth of the value of the former share.

How the stock moved?

Some investors may be wondering: is the stock a buy ahead of its stock split next month? After all, more investors will be able to afford Apple stock, and shares will be more liquid since they can be bought and sold at a lower price.

Though investors should never buy a stock simply because it is about to be split, Apple stock looks compelling today and the company has been resilient and remained impressive during uncertain times.

At least 19 analysts raised their price targets on Apple’s stock following the report, according to FactSet, and the new average target stands at $397.65. Of the 38 analysts tracked by FactSet who cover Apple’s stock, 26 rate it a buy, 8t rate it a hold, and 4 rate it a sell. The stock was trading at $441,86 at the latest check (03 Aug, 10:18 GMT-4).

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