It’s easy to see why Apple (AAPL) is leading the tech revolution, from digital media distribution to smart phones to personal computing. The iPad is just the latest innovative device from Cupertino, Calif., based Apple Inc. The company’s iPod and iTunes lead the digital music industry, and the iPhone is one of the hottest smart phones out there.
But through it all, AAPL also hasn’t forgotten its personal computing roots and has cut into the dominance of Windows with its OS X operating system and fleet of Mac computers. In fact, it’s the quiet growth of Mac sales that provide Apple with one of its biggest opportunities in early 2010.
First, let’s rewind the clock to the beginning of 2009, when the Mac was looking like a rotten apple for Apple. Sales had slipped 16% year-over-year and the lack of revenue from the computer division weighed on shares.
Now fast forward to this year, where consumer spending has firmed up and Mac sales growth helped AAPL post a stunning earnings report. Specifically, in its numbers released in January Apple said it sold 3.36 million Mac computers — a 33% jump over the year-ago quarter. Thanks to this strong computer revenue, the company reported a net profit of $3.38 billion, or $3.67 per share, on sales of $15.68 billion. Wall Street analysts had been expecting earnings of $2.07 per share on sales of $12.06 billion so AAPL posted a 77% earnings surprise and a 30% sales surprise!
Mac sales are clearly heating up. But most importantly, the rest of Wall Street isn’t taking notice. That leaves a big opportunity for investors.
Analyst Gene Munster of Piper Jaffray noted recently that the 16% decline posted between February 2008 and February 2009 is the softest in his five years of tracking the company. That is sure to lead to low expectations for this February. And with sales surging, I expect the Mac is back and Apple will reap the rewards.
I currently rate Apple a strong buy, but don’t pay more than $219 a share or you’ll limit your upside potential.