New Price Target for 'Overrated' Apple After Trump Threat Raises Red Flag
The tech giant had some clear problems even before the president started making tariff promises on the iPhone.
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"Overrated."
I refer to Apple AAPL. Sure, the stock is a cashflow giant. For the quarter ended on March 29, Apple generated operating cash flow of $53.887 billion.
That number is enormous, of this there is no doubt. Still, that number was down 13.9% from its year-ago comparison. The firm spent just $6.011 billion on capital expenditures, but that was up 37% year over year. This left free cash flow of $47.876 billion (-17.7%). "Out of that $47.876 billion," Apple repurchased $49.504 billion (+14.2%) worth of common stock and paid out $7.614 billion (up small) in cash dividends to shareholders.
Simply put, Apple has been soothing investors out of its cash position in order to make up for a lack of growth. For that quarter, revenue generation was up 6%. Apple has not posted 10% sales growth since Q1 2022, and during this long period of what is really just pedestrian growth, the firm has posted a year-over-year sales contraction for a quarter five times.
Honestly, no one should cry for Apple. Including long-term investments, the firm still has a cash position of $132.922 billion. Still, that number stood at $172.575 billion as recently as December 2023. The firm also ended the March quarter with short-term debt of $19.62 billion and long-term debt of $78.566 billion. These numbers hardly present anything resembling a crisis, but it is undeniable that the quality of this balance sheet is not what it was two or three years ago.
Apple Thrives...
On its captive user base. Count me among the captives. It's so much easier to just stick with Apple than to move to a new ecosystem. The smartphone is essential to business. We can choose between Apple or Android, but we need smartphones. Is the modern iteration of the iPhone notably improved from the iPhone from five years ago? Ten years ago? How about the iPad? Wireless AirPods are nice. I'll admit that. Apple Watch? I am in my 60's and I have still never spent more than $25 on a watch in my life. My watch has a face with hands and still ticks. Maybe if they could get that thing to accurately measure blood pressure.
Question: Has Apple invented anything new that consumers just could not live without since the death of Steve Jobs?
The stock trades at 28-times 12 months' forward-looking earnings on 6% sales growth and 7% earnings growth. The S&P 500 trades at just 22-times forward-looking earnings despite posting earnings growth of 13% for the first quarter. Oh, you did not realize this. That's right, the broader S&P 500 is growing earnings almost twice as fast as Apple. Nvidia NVDA trades at 32 times but can boast 47% earnings growth on 45% sales growth. Maybe Apple should slow down on the repurchasing of shares and ramp up its dividend. That's what slow-moving firms that produce impressive cash flows do.
Now This...
On Friday morning, President Donald Trump posted to social media the idea that Apple should pay a 25% tariff on iPhones made outside of the U.S. The vast majority of iPhones are manufactured in China. Apple has been moving a greater percentage of production to India in an attempt to diversify away from China while still accessing dirt cheap labor. The president let CEO Tim Cook know on Friday morning that, in his view, that's not going to cut it. Cook is going to have to cut some kind of deal.
In addition, the battle with Epic Games is ongoing. The maker of the Fortnite game has taken on Apple concerning the cut that Apple takes of all sales made in its app store. An adjustment here could knock as much as $0.30 a year off of Apple's earnings per share. That would be more than a 4% haircut based on 2025 estimates.
The Chart
Readers will see that Apple has developed a double-top pattern of bearish reversal with a $193 pivot after rallying up from the early April lows. I got myself short this name on Friday morning after the president did his thing, so I could be biased. I currently have a net basis of $196.22. Of course, that average price could be different by the time you read this.
Relative strength is relatively weak. The daily MACD is now postured bearishly, with all three components below zero and with the 12-day EMA below the 26-day EMA. The stock is also currently trading below all three of its key moving averages. That means that not a lot of help is likely to be on the way anytime soon from either the community of swing traders, nor from professional money movers.
My target price is $170. My panic point is $211. I may add at the 50-day SMA depending on the situation id and when it gets there.
At the time of publication, Guilfoyle was long NVDA equity and short AAPL equity.
