Apple Inc.

AAPL Details

Apple Stock Split: Apple Inc. (NASDAQ: AAPL) is a leading manufacturer of mobile phones, personal computer, laptops, and other electronic gadgets. The company also provides software platforms like iOS, macOS, watchOS and tvOS to its clients. As per the recent press release, S&P Dow Jones Indices will make the Apple split and the new additions and deletions to the Dow Jones Industrial Average (DJIA), effective from August 31, 2020. Apple had stated that they would be splitting shares 4-for-1, post which, S&P Dow Jones will make changes to make up for the relative decline in weight for technology stocks. S&P Dow Jones has decided to drop ExxonMobil, Pfizer and Raytheon and replace them with Salesforce.com, Amgen and Honeywell, respectively.

Apple Music Brings Two Radio Stations: On August 18, 2020, the company restored its live radio strategy for Apple Music. By doing so, Apple stated that two new radio stations, specifically Apple Music Hits and Apple Music Country, will be introduced on its Apple Music service, while its leading Beats 1® station will be renamed as Apple Music 1. The new naming format of Apple Music X also gives impetus to the company for expanding its radio line-up over time to incorporate more genres and thematic station.

Other Recent Updates: According to several media sources, Apple is planning to announce a range of subscription bundles alongside its new iPhone 12 series in October. Notably, the bundles are being mentioned to as Apple One and are said to work with Apple's Family Sharing system that offers access to an upper limit of six people for each service. In another update, the company stated about an update to its 27-inch iMac®. The new 27-inch iMac will deliver consumers the ultimate desktop experience.

Q3FY20 Operating Highlights: During the period, the company reported net sales of $59.69 billion, up 10.9% year over year, aided by 31% increase year over year from iPad sales and 21.6% increase from Mac sales. Earnings per share for the period stood at $2.58, up ~18.3% year over year. Total gross margin stood at $22.68 billion, as compared to $20.23 billion in Q3FY19, driven by a favorable service mix and higher leverage.  Net income during the period came in at $11.25 billion, as compared to $10.04 billion in Q3FY19. The business reported a strong operating cash flow of $16.3 billion. The company exited the quarter with a total cash balance of $193.62 billion, with total term debt amounting to $101.56 billion.

Q3FY20 Key Income Statement Highlights (Source: Company Reports)

Risk: Uncertainty around the impact of the coronavirus pandemic, and stiff competition from peers remains a potential headwind. Also, pricing pressure in the market and shift in consumer behaviour due to COVID-19 led crisis, adds to the woes.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of AAPL closed at $499.23 with a market capitalization of $2.13 trillion. The stock made a 52-week low and high of $203.32 and $515.14 and is currently trading at the upper band of its 52-week trading range. The stock has delivered positive returns of 31.32% and 57.02% in the last one month and three months, respectively. Considering the aforesaid facts, its flagship products, durable business model, enhancing shareholder’s value, decent balance sheet, and business prospects, we have valued the stock using EV to Sales multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in % terms). Hence, we give a ‘Hold’ recommendation on the stock at the closing price of $499.23, down by 0.16% on 28 August 2020.

AAPL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Rocket Companies, Inc.

RKT Details

A Look at RKT’s Preliminary and Unaudited 2QFY20 Key Financial Results: Rocket Companies, Inc. (NYSE: RKT) is a holding company consisting of personal finance and consumer service brands. During the June 2020 quarter, the company reported total net revenues of $5.0 billion, up a whopping 437% on a year over year basis. Net rate lock volume for the quarter stood at $92.0 billion, an increase of 170% from the prior corresponding period. Gain on sale margin went up from 3.22% reported in 2QFY19 to 5.19%. Net income for the quarter stood at $3.5 billion as compared to a net loss of $54 million reported in the year-ago quarter. Adjusted EBITDA increased 868% year over year in 2QFY20 and came in at $3.8 billion. The company reported robust results for the second quarter of 2020, which signifies the power of RKT’s platform and its team members’ solid commitment to deliver a great experience for its key clients. The company exited the quarter with a cash balance of $1,724 million. Other financial facilities and debt at the end of the period came in at $2,637 million.

Key Financial Highlights (Source: Company Reports)

RKT Started Trading on NYSE: On 6^th August 2020, the company stated that it has debuted on the New York Stock Exchange (NYSE) as a publicly traded company with its stock starting to trade under the ticker symbol “RKT”. The company had earlier announced the pricing of its initial public offering of 100,000,000 shares at a price of $18.00 per share.

Industry Outlook: The industry’s growth is likely to accelerate in the coming days due to the increasing number of remote workers in the wake of the coronavirus crisis-induced work-from-home wave. Due to the COVID-19-sparked demand for remote working, online learning solutions, and digital healthcare, there has been an accelerating in the adoption of digital transformation offerings among enterprises.

Risks: Higher spending on acquiring skilled talent, and restructuring initiatives including modernization of IT-service infrastructure are heading to higher debt levels, sales & marketing, and R&D expenses. Also, stiff competition from peers and foreign currency fluctuation adds to the woes.

Stock Recommendation: The stock of RKT closed at $28.42 with a market capitalization of $56.4 billion. The stock made a 52-week low and high of $17.5 and $29.96 and is currently trading at the upper band of its 52-week trading range. Notably, the company is set to report its 2QFY20 results on 2 September 2020. On the TTM basis, the stock is trading at an EV/Sales multiple of 5.9x, higher than the industry median (Financials) of 3.1x. Considering the aforesaid facts, the company’s current trading levels, upcoming results and the uncertainty regarding the impacts of COVID-19, we have a wait and watch stance on the stock at the closing price of $28.42, up 4.87% as on 28 August 2020.

RKT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.