Taking Stock of Apple Stock:Revenue Projections

Ben Vested

Apple announced blow out earnings just a week ago but it is never too soon to think about what future quarters will bring.

Here is a revenue/stock price analysis of AAPL for the next year by quarter  BEFORE adding in announcement of new products.

The only really meaningful assumptions made are as follows.

1, No major downturn to the current world wide economy
2, No major supply constraints for iPhone and iPad
3, Near past trends in other products are good predictors of the near term future performance

Apple is currently selling for 19x trailing 12 earnings and has pre-anounced revenue of $18 Billion for Q4 (FY10 ending Sept 30) 

2009 coming into 2010 was confusing there was iphone ipod and Mac. 2008-9 economy sucked, The Stock Market sucked. The iMacs were due for renewal, iPod had reached saturation and The deferred accounting for iPhone made understanding earnings going forward. As a result Apples earnings were difficult to predict and a good hunk of that growth had to have built in earnings for Product X.

This year is much clearer. The economy sucks but is at least stable and Apple has shown itself to be reasonably recession proof. Legacy products (Mac and iPod) represent about half of Apples business and are stable mature businesses with some growth. The other half of Apples business are two new products very early in their sales growth. (these two halves add up to about 90% of the business) iPad and iPod.  While the iPhone is the coolest gizmo ever the iPad makes it clear that iOS and mobile computing in general will change our computing paradigm.

One open question about Apple revenue is not demand but supply, Can Apple supply the scads of iPads and iPhones the market wants?  White iPhone aside I think Apple can meet most iPhone demand but iPad demand caught Apple a little flatfooted.  I think supply of iPad will be somewhat constrained for "a while". 

Current demand for iPad is far in excess of the 1 million a month Apple spoke of (earnings call) as their pre-release manufacturing bogey.  I suspect that as a prudent company Apple built in some headroom in capacity when they made their order so while it may be difficult to triple supply as they may have to replicate an entire line/factory/expertise (or any of a million other things) I suspect that it may be possible that they were (or will in short order) able to significantly increase, even double capacity in the near term. (Total speculation)

These Tables represent EPS and the indicative price per share over the next year given a set of income projections that while bullish are reasonable. (I will go more into the model at a later date). The P/E scale is based on the highest and lowest P/E's Apple has traded at over the last 5 years. What is NOT in the model is whatever product i"X" Apple has planned for market over the next year.  So while my analysis is bullish for the products I modeled, it is conservative in that the model does not include any revenue from as yet unannounced products.  It is impossible to know what the revenue impact of for example a new Apple TV offering or a completely redone (please please please) Mobile Me service.

 

			Earnings Per Share Stock Pricing Matrix
YOY Revenue Growth	Quarter	Trailing 12 Earnings per share	15	20	25	35
61%	Q3 2010	13.28	199	266	332	465
68%	Q4 2010	15.00	225	300	375	525
83%	Q1 2011	16.88	253	338	422	591
43%	Q2 2011	17.85	268	357	446	625
48%	Q3 2011	19.56	293	391	489	685
			Dollars per Share Earnings Multiple Matrix
YOY Revenue Growth	Quarter	Trailing 12 Earnings per share	200	300	350	400
61%	Q3 2010	13.28	15	23	26	30
68%	Q4 2010	15.00	13	20	23	27
83%	Q1 2011	16.88	12	18	21	24
43%	Q2 2011	17.85	11	17	20	22
48%	Q3 2011	19.56	10	15	18	20

 

 

Take it for what it is worth. But on a historic growth basis Apple does appear to have significant room to grow.  Assuming Apples share price remains at 20x earnings, in that case Apples share price would increase 47% over the next year.  There are a couple of price barriers to Apple stock and they are related. The first is issue with growth of the share price as we look at it going forward. While I think the earnings growth for the next year or two is locked in. It is not clear what will happen next The other issue is market cap.  Apple has a market cap second only to EXXON. Fricken EXXON.

Lastly, this is not an analysis or rebuke to Apples cash position since it is stellar the cash has little effect on the stock price (Although it is hugely diltutive to ROA). and it is a good thing that they are cash flow positive 1.3billion dollars a month.

That said should pay a dividend. by the end of fiscal 2010 Apple will have ~$50 Billion in cash and marketable securities. There is no rational reason for the company to have this much cash. None.

Really Lastly. The Author is long APPLE. You need to do your own math and most certainly don't follow the advise of semi anonomous internet talking heads to buy your stocks. As a buddy of mine tells me a lot. Don't invest in ANYTHING you do not understand. for most of us that does not leave much. 

 

 

On Analysts and Earnings Apple Reports today

This afternoon Apple will report another record quarter with both unit sales and revenues the best in the companies history.

If you knew before the announcement how many computers, phones, music players, Apple sold AND how much revenue they took in, you still could not reliably come up with a per share earnings number within 10% of what will actually be announced.

Analysts come up with a number because we (the investing public) goad them into it. It is a spectator sport. Some analysts will come closer to the actual number than others. Assuming they do not have inside information it is simply chance. Most of the analysts know this simple fact yet they submit to the kabuki because, well, they want to make a living.

Here, I can prove it.
If you knew Apples Gross Revenue all you would have to do to come up with an earnings number is accurately predict gross margin and tax rate. (that's all?) so on earnings of say 8 billion a 4% difference in gross margin would indicate a range of ~ 23 cents a share. Compound that with a 4% difference in tax rate (12 cents) and you could be off by 35 cents a share. And you knew the earnings!

Is that enough of a disclaimer?
Because I have to...
1.22 on 8.3 billion in Revenue

Writer is long Apple. Don't believe a thing he says, he is not particularly stable as evidenced by his willingness to predict (guess) earnings KNOWING he cannot possibly be correct.

So listen to what the Analysts say about the business

Apple Cheap: Unless it's Not

So World financial markets are melting down  and our favorite stock looks cheap cheap cheap.  Not so fast...

Apple is only cheap IF it is cheap relative to other alternatives in the market.   Since we have limited information and ability to research all the information about all the stocks in the marketplace we use the S&P as a proxy for the market and a warning.  In 1932 the average PE for the entire S&P 500 index was 8!

Apple is currently selling for 19X Earnings (14 if you deduct the cash they should be paying shareholders in stock buybacks/dividends)  The median P/E since 1920 is 15.7 (Robert Shiller Yale via Investopedia) and has been BELOW 10x earnings 5 times for a cumulative 11 years.  

Apple is easy to love and certainly the stock is, on a P/E basis the cheapest it has been in years, what is not clear is whether it is cheap relative to other stocks available in the marketplace.  What is Dell's P/E?

Apple Sucks less than Lehman and AIG

Apple was spanked yesterday (140.36 -8.58 (-5.76%) Sep 15 4:00pm ET) during a 500 point market sell off triggered by Lehman Brothers filing for Chapter 11 protection from creditors.   Fannie Mae and Freddie Mac two companies that together hold HALF of all home mortgages in the country were taken over by the government.  These are not good times.  And for those of you blissfully unaware of what is transpiring in financial markets know this.  If AIG, one of the worlds largest insurers, is forced out of business we will all be worse off.  Things are not good in the economy, this week has been one of the bleakest in the financial markets in the last hundred years (1929)

On the other hand

 

Apple has between 21-25 Billion dollars in the bank.  Mac sales growing 25-50%.   iPhone sales off the charts (as many as 12 million to date), and plans to buy a Mac hit an all time high.

 Apple is just fine selling overpriced, proprietary computers,  overpriced proprietary music players, and overpriced proprietary cell phones.  Be a believer in sustainable margins, sustainable market advantage, and remember cash is king.

Lost in the news today aside from half of Ohio not having electricity,  Citibank reiterated a buy on  Apple with a price target of $287!  You go Richard!  No one knows where stock prices are going but given Apples actual earnings and projected growth for the next year.  It would seem that the performance of Apple stock should suck less than the market at large for the next year.

If you buy this stock you must have money, can you share?  I make all this up.  Really.  If you take the word of anonymous, but deceivingly erudite bloggers including this one. You deserve what you get.  Do real research this is just fun.