The following is an excerpt from Tiernan Ray | August 9, 2012 | Barrons.com |
As I mentioned this morning, Stifel Nicolaus‘s Aaron Rakers started coverage of Apple (AAPL) today with a Buy rating and an $825 price target, writing that the company’s “off-balance-sheet” investments suggest business in coming months could be better than investors expect.
Digging through Apple’s recently filed 10-Q statement for the fiscal Q3 ended in June, Rakers digs through the off-balance-sheet investments, which he argues historically have had a high correlation with revenue a couple quarters out:
Exiting the June quarter, Apple reported total (off-balance sheet) third-party manufacturing commitments and component purchase commitments totaling approximately $13.6 billion – an increase from $11.0 billion exiting the year-ago quarter. Apple’s filing also discloses that it exited the quarter with $4.4 billion in inventory prepayments outstanding, up from $3.3 billion exiting the prior quarter. This includes approximately $1.3 billion in current inventory component prepayments (v s. $653 million exiting the March quarter) and $3.1 billion in long-term inventory component prepayments (vs. $2.7 billion exiting the prior quarter). These commitments, which cover periods of up to 150 days (historically citing 30-150 days), combined with Apple’s owned inventory levels exiting the quarter, have carried a very high historical correlation (R2 = 0.962; y = 5.4684x – 708.22) when compared to forward two-quarter product (iPhone, iPad, Mac, & iPod) revenue.
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