Apple -- the grand daddy of value
The chase by Frances Horodelski:
Whew - the day hasn't even started and there is so much going on.
First, so far this year, across the world there have been $1.3 trillion US worth of mergers announced and we're running at levels last seen on a quarterly basis in 2008. Today, we have a number in the works including GE sniffing around France's Alstom SA, according to Bloomberg and other sources. GE has some $57 billion in stranded cash overseas and this acquisition could eat up $13 billion or so for the builder of trains and power plants. Telekom Austria is up on America Movil (Carlos Slim's company) moves. There are rumours that LG Household could be looking at Elizabeth Arden - and it's not even 7 o'clock ET. And another one just in with Zimmer Holdings (the knees and hips company) has offered to buyBiomet (a worldwide leader in the design and manufacture of products for the orthopedic, sports medicine, dental markets and more.)
Second, earnings. I count at least 60 first quarter earnings reports today from companies as diverse asEquifax, Altria, Caterpillar and D.R. Horton through Hershey, Dunkin' Donuts, Eli Lilly, 3M and after the closeStarbucks, Amazon and Microsoft. Canada plays the game as well with Potash, OpenText, Transforce, Toromont and Lundin Mining reporting. AndCaterpillar just reported a big beat at $1.61 vs $1.23 expectations and raised its 2014 forecast - what slowdown you say?
Third, how about that Apple? Revenue beat and iPhone unit sales were about 16% above the Street's estimate. And then, of course, there is the buyback increase (50% boost), a higher dividend (by 25 cents/quarter) and a 7-1 split (making Apple a more eligible candidate for the Dow Jones Industrials Average). Carl Icahn is happy - here's one of his two tweets following the earnings announcement "Agree completely with $AAPL's increased buyback and extremely pleased with results. Believe we'll also be happy when we see new products." My problem is that the company, to pay for its increased buyback and dividend activity will be borrowing this year an amount similar to last year's borrowings. My quick calculation shows that since 2008, Apple's total asset have risen 5.7-fold, BUT total long-term liabilities have risen 16-fold. Now, don't get me wrong, Apple is still wildly underleveraged (total equity is $120 billion with cash and long term investments of $150 billion versus debt of $17 billion (and total long term liabilities of $39.4 billion). But borrowing to buy back stock - I just don't know. BUT enjoy the ride, the stock is cheap, the balance sheet is strong and as growth gives way to value, Apple, as I have noted repeatedly on The Buzz and elsewhere, is the grand-daddy of value.
Fourth, with all the earnings (65% beating expectations on earnings which are growing at a very modest 1.6% year over year), don't forget the trees. After six days of gains, yesterday was a day of rest. Apple and Facebook are boosting sentiment this morning and 1,900 on the S&P is so tantalizingly close, a shot at it is certainly not out of the realm of possibility. And with sentiment muted and lots of money on the sidelines it seems like an easy forecast. But the easy forecast isn't always the one that materializes. While the world seems to have turned their attention inward, don't forget the hot spots like Ukraine/Russia and China/Japan are still there waiting to be reviewed again.
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