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Will Apple Close at $700 Before May Day?

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Apple's (Nasdaq: AAPL  ) second-quarter report beat estimates on some numbers but missed a bit on others. Despite some disappointing news mixed in, however, the stock soared from its $560 share price before the markets opened this morning to close at $610. That is quite a surge, even for Cupertino. It seems as if the positives are definitely outweighing the negatives today, and here's why I think this trend will continue, and why Apple will end the month closer to the $700 mark than it has ever been.

The great news is really great
Apple's revenue exceeded expectations by $2.39 billion for the quarter, and earnings per share came in at $12.30, compared with the forecast of $10.04. The company's iPhone sales blew away all predictions, outselling street estimates by 4.6 million.

But the two most important numbers here, I think, are these: a 94% year-over-year profit surge, and an increase in the gross margin to 47.4%, up from 41.4% a year ago. That latter figure is huge, and it obviously contributed to the higher profit numbers. More than that, though, it shows that Apple is widening its margins, something that's always difficult to do in any business. Its ability to increase a profit margin that's already more padded than most of its competitors' bodes extremely well for the future of the company's bottom line.

The not-so-great-news isn't as important
Sure, everyone would have loved to see iPad sales trump estimates, instead of missing by an estimated 1.2 million sales last quarter. The same goes for sales of Macs, which sold 400,000 fewer units than analysts expected. But the Mac is due for a refresh, and management notes that Mountain Lion is due out this summer.

As far as guidance goes, it's a bit guarded because of the huge demand for the iPhone, which the company thought represented pent-up demand and so will be hard to beat next quarter. The same goes for the iPad, demand for which Apple expects was mostly sated by the end of March. After all, those numbers were up 151% compared with one year ago.

Niggling issues such as Apple's current court battles with Motorola Mobility (NYSE: MMI  ) don't seem to be bothering investors much, either, and a preliminary judgment that Apple violated only one out of four of Motorola's patents may reduce the concerns regarding the tech giant's liability.

Even bad news from AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) regarding iPhone sales this past quarter didn't dull Apple's shine. Though Verizon saw 24% fewer iPhone activations and AT&T a whopping 43% fewer, the two companies make up only about one-third of iPhone sales these days. Overseas markets are making up the rest, and Apple has seen only minor penetration in China so far -- which means bigger numbers for the future.

Fool's take
Even if Apple Fever cools a bit in the next few days, the company certainly seems to have regained its groove. Scattered clouds had hovered over the tech giant in recent weeks, but this report has cleared the skies quite a bit, and crunching the numbers shows that Apple is taking steps to secure its future, and profits. It looks as if the doubters have finally learned their lesson, and there will be sunny weather in store for Apple from here on.

As Apple's massive jump today shows, earnings season can have massive consequences for the stocks in your portfolio. The Fool thinks it's identified five stocks -- one of them being Apple -- that look poised to rock earnings season. We've detailed what investors need to look out for in a free research report for our readers. Access your free copy today.

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 25, 2012, at 9:31 PM, G44ca wrote:

    I certainly hope you are correct about Apple getting to new highs this month but I very much doubt that will happen. Apple's next quarter will be quite soft due do the fact that the iPhone 4s has seen it's last BIG country launch and the iPad and Macs have lower margins. So next quarter will likely see reduced revenue and reduced margins on that revenue. Apple will still beat it's own guidance, but by a much smaller amount and if analysts show the same enthusiasm for the stock as you have their estimates are likely to be too high. That would lead to a miss by Apple and the stock would suffer. I suggest investors temper their enthusiasm for the stock for a while and wait a quarter or two for the run up into the iPhone 5 launch. Guck luck to all and stay long Apple. Just don't expect too much in the near future.

  • Report this Comment On April 25, 2012, at 9:40 PM, mshipe101 wrote:

    Oppenheimer stated the iPad is "on fire" and expects greater YOY and sequential growth for the 3Q. Granted the ASP and margins are less versus the iPhone, Apple should be able to attain $10.00 EPS without a problem.

  • Report this Comment On April 25, 2012, at 10:52 PM, Mackey480 wrote:

    No one knows what will happen to apple.but I think they will end up closing the year around $1000 a share. This will come about because of there new steps to the tv market and the iPhone 5 and the new iPad 3 will even make more sales as the holidays come and the year comes to an end. iPhone sales are a majority of apples sales and with the iPhone 4s doing so well through this quarter I believe that the iPhone 5 will be the most expensive launch that apple has launched.

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