Apple hits $600 a share this week, where next in 2014?

It’s amazing what a difference a year makes when it comes to Apple shares. Last summer the shares dropped as low as $388. This week they had bounced back all the way to $600, their highest since October 2012 but still off their highs in September 2012 when they hit $700. The current market cap is $512 billion.

 

The rerating has mainly been due to a new shareholder friendly strategy advocated by Chief Exective, Tim Cook – share buy backs, stock splits, dividends. Something that his predecessor Steve Jobs never even considered, preferring on focusing Apple’s resources on product innovation with the iPhone and iPad his legacy products before his death on October 5^th, 2011. The company’s shares will split 7 for 1 in June which is expected to boost private investor demand.

Carl Icahn, the activist investor who took a stake in Apple last year was agitating hard for Apple to use some of its enormous cash pile which totaled over $160 billion recently. The share buy back was recently increased from $60 billion to $90 billion. The share repurchase program and the dividend payout together will return $130 billion to shareholders in current fiscal year.

Expectations are high for the forthcoming launch of the iPhone 6 which is rumoured to be coming in September with a larger screen than the iPhone 5. The iPhone 6 will almost certainly come with iOS 8, Apple’s latest mobile operating system which is likely to be released at the Worldwide Developer Conference (WWDC) in June. Apple needs a perfectly executed launch of the iPhone 6, with the iPhone 5 selling around 44 million units in the last quarter.

There was a big slow down in iPad sales this year and it will be interesting to see how the company plans to innovate around this product given the latest device already had a pretty solid performance and the iPad mini has already been launched. The company reported sales of only 16.35 million units for 2QFY14, compared to estimates of 19 million.

The much rumoured iWatch and Apple TV set are key to accelerating growth in order to move revenues up from the $45 billion in the last quarter.

Apple is hoping its second time lucky for its new head of retail with ex-Burberry boss, Angela Ahrendts, joining with a potential share award worth $68m (£40m). This equates to 113,334 restricted stock options which will transfer to her in a series of payments over the next four years. The first instalment will vest on 1 June with a value around $10 million. Her predecessor, John Browett, formerly chief executive of Dixons and now heading up Monsoon Accessorize, exited after just six months in the role but would have been entitled to shares worth $55m had he stayed a full term. Apple’s retail sales were $7 billion in the last quarter up 9% year on year.

So what about the expectations for the future. The company is expected to deliver nearly 6% revenue growth between 2014 and 2016 with earnings per share expected to grow around 8%.

The $600 mark was hit, now Cook needs to deliver some decent new products to hit the magical $700 a share mark yet again, but the cash laden company’s new policy to return money to shareholders seems to have been well received by Wall Street. If the markets behave themselves, the shares will be worth watching around the stock split in June. The shares are currently trading at $592. The products are great, but look at what complacency did to BlackBerry! Innovation is key……ground breaking innovation. Mr Jobs is watching!!

Contrarian Investor UK

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