Apple Iphone X

Apple Crushes It, Tesla Crushed, Starbucks Living On A Prayer

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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You just have to wonder how they do it. The amount by which Apple beat estimates, which was nearly $2 billion, almost 3.6 percent seems insane. Analysts were looking for $50.71 billion, according to Ycharts, Apple reported $52.58 billion. Look at the growth rates; the America’s saw revenue growth of 14 percent, Europe 20 percent – Europe!. China grew by 12 percent. These aren’t year-over-year growth rates off a tiny base. America’s revenue increased to $23.099 billion, Europe to $13.00 billion, and China to $9.8 billion. Huge.

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So much for there being no iPhone demand. Apple only sold 46.6 million units in the quarter, a rise of 14 percent sequentially, and 3 percent year-over-year.

Then, of course, the guidance for the first quarter, tremendous. Apple is looking for revenue of $84 to $87 billion, and at the mid-point, that is revenue of $85.5 billion. Wall Street consensus estimates were at $84.60 billion.

What about those rumors? No iPhone demand, production issues? It seems like there is no problems based on these numbers.

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AAPL Price data by YCharts

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Then there is Starbucks, a once mighty flyer that has had its wings clipped. The company reported earnings of $0.55 in line with estimates. Revenue came in $5.698 billion, while estimates were looking for  $5.807 billion.

If the results themselves weren’t bad enough, Starbucks then gives these long-term targets, why companies do this is beyond me. It either sets expectations that are too high, think Celgene. Or it sets them at levels the street doesn’t want to see, think Starbucks. Annual Global Comparable Sale of 3-5 percent, revenue growth of high single digits, earnings growth of 12 percent or higher, who wants to hear these things.  These aren’t growth numbers; these are we are either setting the bar low to beat, or we are no longer a growth company, so don’t value us that way anymore.

Meanwhile, Starbucks guided the full-year 2018 EPS to a $2.30 to $2.33, shy of consensus of $2.35, while revenue is expected to grow in high single digits. Even at a 9 percent growth rate, revenue would come in at $24.40 billion, based on 2017 revenue of $22.39 billion, consensus was looking for $24.75, according to Ycharts.  Disappointing all around.

The stock is currently trading at 19 times 2019 estimate of $2.70, which will likely have to be lowered slightly, but still it is expected growth of about 15 percent, which certainly doesn’t make the shares overvalued, that is the one saving grace here. But to get shares moving higher, two things need to happen. The market needs to give the stock a higher multiple, which seems unlikely to happen, or the company needs to grow earnings faster.

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Tesla shares fell far more than I would have expected, but part of that could also be attributed to the ending of the electric vehicle subsidies. But that could be viewed as a positive in a way. Why? Because first, the limit is on the first 200k cars, which Tesla is already pretty close too so that subsidy would have gone away, regardless. The other point is that now all the auto companies coming out with their version of electric cars won’t receive that benefit that helped Tesla to get its feet on the ground.

But the truth of the matter, how many people buying a $100k are car going to decide to choose a Tesla over a Mercedes because of the subsidy. Chances are at that price range it is a nice option to have but, likely not driving the ultimate decision. Second, the subsidy was never really going to benefit Model 3 owners anyway, because like we said earlier it was ending anyway.

Interestingly, Tesla Zero Electric Vehicle credit sales in the quarter were less than $1 million. In the prior quarter, they were $100 million.

As for the trading of the stock, there is so much day-trading in the name, it is impossible to tell at this moment were shares are going. The one positive is that the stock didn’t close at the lows of the day, and it tried very hard to hold $300.

Tesla Apple Starbucks

Let see where it is in 3-days time when the day traders find another stock to day-trade. Nvidia is reporting soon.

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Michael Kramer and the clients of Mott Capital own shares of TSLA, CELG, SBUX

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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.