Tuesday, July 16, 2019

Fiscal 3Q 2019 Final Estimates


As of today's close of $204.50, AAPL is trading at a 15.5x multiple on my next-twelve-months EPS estimate (14.0x when excluding NTM net cash and dividends).

Don't get fooled by the most boring quarters, like, ever. Another consecutive "no collapse" quarter is good, means last Q1 adjustments worked. Not sure why WS sees 3% rev decline in Sep after flat or slight growth in June, in any case, strong Q4 guidance may surprise (but no earns growth until Q1).

Emphasis on intriguing longer-term themes is great. Key behind-the-scenes platform and business model shifts, happening almost in slow-motion, into new services and broader ecosystem relationships eventually will have huge effects on long-term fundamentals, but ironically will be hard to notice for some time and confound most pundits.

Also hard to explain, so I'll leave it at that.


Detailed estimates:


3mo ending Jun19  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   53.4     -  2.10
Apple guide low    52.5  37.0  2.00*
Apple guide high   54.5  38.0  2.21*
My estimates       53.8  37.8  2.15 (4.59b shares)

Monday, April 22, 2019

Fiscal 2Q 2019 Final Estimates


As of Friday's close of $203.86, AAPL is trading at a 15.5x multiple on my next-twelve-months EPS estimate (14.3x when excluding NTM net cash and dividends).


Highlights:

iPhone rev -15%/+2% annual growth in FY 19/20, low single digits thereafter.
Non-iPhone rev +16%/+10% annual growth in FY 19/20, high single digits thereafter.
Total rev -3%/+5% annual growth in FY 19/20, mid single digits thereafter.
Net income -9%/+7% annual growth in FY 19/20, mid single digits thereafter.
Quarterly dividend raised to 81/91 cents (+11%/+12%) in April 19/20.
Buybacks of $49b/$21b for FQ2/FQ3 ($63b authorized up to last Q).
$75b buyback authorization expansion, $80b buyback over 1y ending March 2020.
$65b buyback 1y ending March 2021, approximately $50b/y thereafter.


Detailed estimates:


3mo ending Mar19  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   57.4     -  2.36
Apple guide low    55.0  37.0  2.18*
Apple guide high   59.0  38.0  2.54*
My estimates       57.7  37.8  2.45 (4.62b shares)

Tuesday, January 15, 2019

Fiscal 1Q 2019 Final Estimates


As of yesterday's close of $150.00, AAPL is trading at a 11.6x multiple on my next-twelve-months EPS estimate (10.4x when excluding next-12-months net cash and dividends).


Projection highlights:

- iPhone revenue growth -10%/+3% in FY 19/20 (cf. -12% in FY16)
- Non-iPhone revenue growth +15%/+9% in FY 19/20
- Overall revenue growth -1%/5% in FY 19/20, mid-low single digits thereafter
- Net income growth -2%/4% in FY 19/20, low single digits thereafter
- Next report raises quarterly dividend to 81/92 cents in 19/20 (+11%/+14%)
- Buybacks of $8b/$60b for Q4/Q1 ($71b remained authorized as of Sep 2018)
- Expand authorization by $75b until March 2020, $65b until 2021, and ~$50b/y thereafter

Analysts are modeling insufficient buybacks, or don't believe in net cash zero promises from management, or still hope for big M/A. Implies ~8% upside to consensus EPS estimates.

My prior forward valuation multiple expansion of 0.25x per quarter will gradually taper starting after current quarter from 12x to 13.5x by 2022. Should be aiming at 15x but need to accomodate market sentiment in order to model future share reduction more accurately.


Detailed estimates:

3mo ending Dec18  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   84.3     -  4.19
Apple guid revis   84.0  38.0  4.16*
My estimates       84.1  38.0  4.17 (4.77b shares)

Monday, September 10, 2018

Fiscal 4Q 2018 Final Estimates [UPDATED 10/19]


[This was originally posted on 9/10. Please see 10/19 update details below. As of today's (10/19) market close of $219.31, AAPL is trading at a 15.0x multiple on my next-twelve-months EPS estimate (13.9x when excluding next-12-months net cash and dividend).]


Posting a month early and before Wednesday's event, as promised, in order to test my assumptions and intuition into this cycle, as I did last year as well with satisfying results.

The most uncertain item for me this time is iPhone pricing. I'm modeling a modest reduction from last year prices. Hope Apple can achieve this, as it would allow for a more sustainable boost to unit growth over mid single digits and easily beating the record 231.5m units sold in 2015.

The other sources of uncertainty are the Mac and iPad product lines. I'm assuming a significant update (finally) to both lines, announced and available for purchase this week. My Mac projections may be optimistic but the effect on total revenue and earnings of any mistake on my part will be limited.

I expect a strong Apple Watch Series 4 update, helping with continued very strong Other Products revenue growth.

Finally, I've slightly pared back my buyback intensity estimates, and accelerated the gradual valuation expansion mentioned last quarter from 0.1 to 0.25 quarterly increases in the EPS multiple, which now goes to 15x by 2022. Of course, this more realistic valuation reduces the number of shares Apple will be able to retire, resulting in a moderation of FY19 EPS growth from 30% to 23%. However, this is still well above Wall Street analysts, who continue to underestimate the effect of buybacks given their 15% EPS growth estimates when compared to their 5% revenue growth for next year (I'm at 6% revenue growth).


Detailed estimates:

3mo ending Sep18  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   61.2     -  2.76
Apple guide low    60.0  38.0  2.67*
Apple guide high   62.0  38.5  2.84*
My estimates       62.0  38.4  2.83 (4.83b shares)

Monday, July 16, 2018

Fiscal 3Q 2018 Final Estimates


As of Friday's market close of $191.33, AAPL is trading at a 13.4x multiple on my next-twelve-months EPS estimate (12.2x when excluding next-12-months net cash and dividend).

Huge buyback program as predicted. Although didn't specify an extended timeframe, the $110.4b ($10.4b left in previous program and $100b for new program) authorized until next March nearly matched my $115b estimate over the first year. On the other hand, contrary to my hopes for some persuasive punditry dismissal of it all as mere financial engineering and a waste of cash, it seems market participants will just not let Apple steal their shares—unfortunately this means buybacks will retire fewer shares.

This is the fifth consecutive quarter since the very first time ever that the average quarterly stock price started aligning with my one-year targets at this time last year, and since then the valuation has held steady at about 11x forward EPS plus net cash and dividends. So yes, I've been a bit too skeptic for the last year or so, at first understandably skeptic of tax reform passing as promised—which it didn't—and on time, and later about euphoric market sentiment continuing for as long as it has.

So, I'm going to capitulate just a bit (now watch the market turn just as I give up). I've decided to gradually shift my valuation formula to use a multiple of 11x. It's not that I worry that my targets aligning with the current average stock prices makes me look bad or bearish (I'm neither). The year-long deviation is perfectly within the expected variance embedded within such a simple valuation heuristic. Normally I would at least hold on to it for another year or so before revising the parameters that fit the pricing data so well for the last 10-15 years.

But this time there's a wrinkle to deal with when deriving a forecast price for the shares, which is one can no longer attribute all of the deviation to market sentiment even if the fundamentals were correct. Up until now I was able to say, for example, look I guessed EPS and net cash right but the market is valuing that slightly higher or lower than at 10x. But now, because of the huge buybacks, the eventual price path taken has a significant effect on future EPS, so I need to try to be as realistic as possible in the projected price path if I want to claim my projected EPS is not a significant source of error.

Since my FV projection at 10x would remain well below the market price for several quarters, modeling buybacks on that path would retire more shares, which artificially (as it's clear that won't be the real price paid in the immediate term) boosts EPS growth in the future, and saves on dividends, allowing for a little bit more cash to get used on more buybacks further in the future. The market has shown to be not so dumb and apparently won't allow for a bargain, at least for now. That means those compounding effects mentioned will not be as intense in reality as on an artificially low modeled price path—a path which artificially creeps into the future valuation. In reality it now seems pretty evident that neither the market nor Warren Buffett nor Apple will let such a low price path last for even a couple of weeks—much less several quarters—before acting opportunistically to take advantage of any weakness, and thus swiftly eliminating any blatant pricing opportunity for others. To reiterate, this shift to 11x is just my way of trying to reflect the effect of buybacks on EPS more realistically, and not motivated by market sentiment, impatience, or FOMO.

Anyway, I'll do the shift to 11x gradually, over 10 quarters (0.1 quarterly increments), starting with last quarter's trailing value at 10.1x. This means my fair value is now based on a 10.5x multiple and my target is on a 10.9x multiple. For now I'll stop at the following quarter at 11x which will be the target for the next report. I'm willing to continue increasing it—over time—perhaps up to 12.5x or so as long as the market continues to price in the buybacks in advance, as it has so far.

Despite investors holding steady and—as mentioned—pricing buybacks in advance, at least by a year or possibly two, WS analysts are a different animal. Consensus EPS estimates for the next several quarters currently appear to significantly underestimate the effect of buybacks. I see about 15% upside to FY20 EPS expectations due to buybacks alone (my revenue estimates being only slightly higher). Unless analysts are factoring margin declines and/or increasing operating expenses as a percent of revenues, they will have to raise their EPS estimates as Apple continues to brazenly retire well over a hundred million shares each quarter without much regard for the price.

Fundamentals continue to track as expected, not much to say other than slight iPhone ASP uncertainty for next cycle and beyond, offset by more validation of solid Services and Other Products growth. MBP upgrade helps support healthy current quarter guidance from pent up demand pushing for an all-time-high quarterly record for Mac revenue, and a broad Fall lineup update allows for continuing growth next FY. Beyond FY19, capital return program effect on EPS more than compensates for tougher net income compares due to tax reform boost ending this December.

For the next report I'll try to repeat last year's experiment of posting a month early, forcing myself to trust in my intuition well before all the new product features and pricing and reviews and customer reception are known, so stay tuned early in September.


Detailed estimates:

3mo ending Jun18  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   52.3     -  2.18
Apple guide low    51.5  38.0  2.14*
Apple guide high   53.5  38.5  2.30*
My estimates       52.9  38.4  2.25 (4.91b shares)