Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: Apple Should Be Graded Like a Consumer Product Company
The company boosts its already above-average quarterly dividend by 10.5% to $0.63 and increases its current share repurchase by $35 billion from the current $175 billion--that's right, $175 billion--to $210 billion. The company ended the quarter with $256.8 billion in cash and marketable securities, an increase of $10.8 billion; 93% of that money is overseas, eligible for a potential tax windfall that could dramatically increase capital return program, already the largest in the world.
It's bought back 20% of the company's stock in the last five years.
What do you pay for that stock?
It's a pretty easy question. The company's revenue, earnings growth, balance sheet and dividend capabilities put is right in the mix with a stock like Procter & Gamble (PG) or Clorox (CLX) , certainly better than a stock like Kimberly Clark (KMB) or Coca Cola (KO) .
But let's be judicious; let's give it an average of the price-to-earnings multiples of those companies, call it 21x earnings.
The result? $189.
But what if the company makes a different kind of consumer product company, a cellphone?
Or, for that one, the one that hasn't been able to produce a device that could blow away people's expectations?
For that, we pay 16x earnings, MAX!
I know; to me, it just sounds unfair. And I think it sounds unfair to Tim Cook, the CEO, too. What's the narrative he is fighting?
OK, let's put it in the negativists' way.
This is a company on a treadmill, each year trying to put out a better product that can dazzle yet, because its previous products are so darned good all it can do is pretty much equal the sales of previous phones.
Not only that, but sales in the fastest-growing market in the world, China, haven't been that strong, so even though they had strong iPhone growth in four of their five operating segments and experienced, and I quote, "especially strong results in Western Europe, the Middle East and our rest of Asia Pacific segments", it's not enough.
And, it's got a once-hobbled competitor, Samsung, that's doing much better after sitting out a round, and it has a rival product that is well-received by critics.
Therefore, you need to sell it, because it doesn't have the kind of growth that you get from other technology companies.
Now, how does the company get off the treadmill?
I could argue that it's had some success doing so, because it's selling for an appreciably higher price-to-earnings multiple than it was a year ago, when the stock stood at $93.
I think that's been happening because its service revenue stream is the blade to the iPhone's razor, and that stream, which we all pay pretty much without thinking of it, brought in $7 billion in revenue this quarter--a new record. It will soon be producing at a rate of about $28 billion and it has a gigantic profit margin, far bigger than the already juicy margins of the razor.
Now, of course, the real issue here is that Apple isn't in a "jam." It has the best products out there, the highest customer satisfaction, and no one doubts that each phone has something that they wanted more than they realized.
The company does admit that there has been a bit of a pause in buying, but it did say that some of that is because of the hype for the big change, the supercycle, the next phone, the iPhone 8. It also admitted that it misjudged demand for the Plus, so perhaps numbers could have been even better. And the trajectory of Chinese growth, while definitely off course, is getting better.
Oh, and if repatriation gets done--and I think it will if the company continues to return the excess cash flow--then another one third of the share count could go away.
But, the only way I can possibly see that the debate is closed about the company's stock and where it should go? It needs to do something to make that service revenue stream to its 165 million subscribers more valuable.
That way, the stock could move out of the cohort that is Facebook (FB) and Google (GOOGL) and Microsoft (MSFT) and Salesforce (CRM) and into the category that more suits it, that of the best consumer branded businesses out there. Is that a sin?
No, it's a solution for the stock price, even if the stigma of being graded as a consumer product company may just be too much for anyone in Silicon Valley to bear.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long AAPL, GOOGL and FB.
Cramer: With Trump as the Loose-Cannon-in-Chief, What's a Company to Do?
When you say out loud that maybe the big banks should be broken up, when you tweet that the country needs a good shutdown in September, you are giving a signal to the American people: "Don't take me seriously, I just think and tweet as if I am not president, but a provocateur-in-chief who doesn't know my own power."
We've come a long way in the past 100 days. We've gone from thinking that Trump's going to save American business to asking if American business can handle the erratic nature of this man's pronouncements. Can American business bank on a one-page tax plan that seems to have few friends in Congress? Can the modern-day CEO run a company without thinking, oh man, what's he going to tweet next?
It's not as onerous as the endless regulations put through in the past eight years. But it's also not what was expected when he came in with guns blazing, vowing to help the American worker while supporting American businesses.