Earnings Season So Far: Largely Impressive Announcements, Less than 15% Falling Short

Dr. Stephen Leeb submits:Earnings season is well underway with about a quarter of S&P 500 companies having already reported. The results, helped by favorable year-on-year comparisons, have been largely impressive so far, with over three quarters of announcements coming above expectations and less than 15 percent falling short. We have only had a few of our holdings report thus far – but we haven’t suffered from any disappointments. As we discussed last week, Intel (INTC) had a blowout quarter – beating its own revised expectations, as well as consensus estimates. The semiconductor giant’s quarter was helped by strong back-to-school revenues – the same type of sales that helped push consumer technology powerhouse, Apple Inc. (AAPL), to another record-setting quarter. In its earnings announcement after the market’s close on Monday, Apple reported its most profitable quarter ever with net income totaling $1.67 billion – a 47 percent increase over last year. The record profit translated to $1.82 earnings per share, obliterating the company’s own guidance of $1.20 a share (which is admittedly always conservative), and easily beating consensus estimates of $1.43 (the highest estimate, at $1.66 was actually well short too). The maker of Mac computers, iPod music players, and the ubiquitous iPhone saw its revenues grow by 25 percent versus the year-earlier period to $9.78 billion – again outpacing expectations. The company attributed the strong quarter to strong education sales (a 12 percent year-over-year increase), which helped Mac sales grow by 17 percent versus the 2008 period. The increase was especially compelling given that estimates of growth for the overall market were only 2 percent – allowing to the computer to continue growing its market share, now at almost 10 percent of the U.S. market (but still leaving plenty of room to expand). iPod sales slacked during the quarter with unit sales down to 10.2 million from 11 million; the good news is that much of this was due to cannibalization from iPhone sales which grew to 7.4 million. The company’s phone accounts for an estimated 2 percent of the worldwide phone market, but should see that increased as the company continues to expand its reach. Earlier this quarter, Apple announced a partnership with China Unicom, China’s second largest wireless provider, and will begin offering the phone in the world’s largest wireless market on Oct. 30th. With impressive results comes further strengthening of Apple’s balance sheet. The company now boasts an astounding $34 billion in cash, accounting for roughly 20 percent of its market capitalization. The cash not only provides a cushion and measure of safety in times of tight credit, but also gives the company ample funding to expand – whether it be through further research and development, acquisitions, or otherwise. Not resting on its laurels, Apple made more announcements Tuesday. The company refreshed its Mac and Macbook lines, while also releasing a new mouse that utilizes the company’s patented touch controls. The moves are designed to provide a spark to the holiday shopping – a time in which the company typically thrives. Further down the road, analysts have speculated about tablet-like device being released by the company. Somewhere between an iPhone and a Macbook – the device would likely compete with netbooks, portable DVD players, as well as mobile book readers like Amazon’s (AMZN) Kindle. As the company continues to deftly sidestep consumer headwinds, earnings growth could easily top 20 percent. The shares, now trading at 27 times 2010 earnings, are still attractive given the company’s growth potential and prowess.Complete Story »

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