Sunday, October 25, 2020

Fiscal 4Q 2020 Final Estimates

As of Friday's close of $115.04, AAPL is trading at a 27.5x multiple on my FY21 EPS estimate (26.6x when excluding NTM net cash and dividends).

I expect record-strong Dec quarter guidance should offset any perceived weakness from roughly inline Sep results due to est. ~$6b iPhone and ~$1b AppleCare revenue push-back (as hinted in last call but perhaps not fully digested by analysts/investors). This offset gets picked up mostly in current 1Q but some also in 2Q ending in March due to late Oct/early Nov launch setting up an unusual 2Q as first full quarter of sales this cycle, a privilege normally reserved for the December quarter.

All product line projections revised upwards over NTM, particularly Mac and iPad which in turn feed back to boost mid/long-term growth for all other revenue segments thanks to my loopy modeling of installed base/ecosystem interdependencies. Modeling very strong NTM iPhone growth due to easy comps, with continued strength over next 2-3 years given 5G rollout spread over several cycles.

Beyond that it's anyone's guess but tentatively allowing for sustainable, long-term growth of high single-digits in revenue and low double-digits in EPS (was mid/high single digits). This boost would then generate enough cashflow to maintain recent ~$75b strong pace of buybacks even after "net cash neutral" goal is met in a few years, yet the higher projected stock price prevents a similar EPS leverage benefit as in recent years at half-price discounts.

As for valuation, such a level of growth if truly sustained long-term (5y) would likely justify further expansion beyond my admittedly conservative 20x multiple, but I've chosen not to bake this in just yet, at least until the more ambitious growth trajectory gets validated over the year or so after the exceptionally scorching March outlier is behind us.

Detailed estimates:

3mo ending Sep20  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   64.2     -  0.71
My estimates       64.8  37.9  0.73 (17.2b shares)

Friday, July 24, 2020

Fiscal 3Q 2020 Should Be Last Without My Detailed Guesses

At the current price of $369.77, AAPL is trading at a 24.1x multiple on my FY21 EPS estimate (23.1x when excluding FY21 net cash and dividends).

Once again I don't feel comfortable publishing my detailed guesses for last quarter's numbers and product revenue breakdown. Hopefully I'll be able to share these details for the next report, as I expect Apple to resume providing quarterly guidance next week.

On valuation, I've extended the projected multiple expansion, now going to 20x (was 18x) over the next 2-3 years. The significant increase in buybacks since 2018 is one of the most important (though seldom discussed) drivers of the valuation expansion. However, after the next couple of years the cash balance will reach within $50b of the stated goal of being "net cash neutral over time" which means the buyback pace will need to slow down a bit to remain sustainable, due to cash flows slightly restrained by potentially higher taxes and some additional tax liabilities coming due in 2023-26.

The only way to maintain the current buyback pace would be through significantly faster growth of cash from operations than I'm currently projecting for the next few years. Additionally, given the current stock price, buybacks can no longer achieve the same hugely impactful leverage effect as when the stock was significantly undervalued, often at half-priced discounts. So a multiple stabilizing around 20x for the foreseeable future seems appropriate for free cash flow growth slowing into the mid-single-digits after the next 2-3 years.

Here's just a few specific estimates I can share:

3mo ending Jun20  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   51.8     -  2.03
My estimates          -  38.7     - (4.34b shares)

Friday, March 13, 2020

Skipping Detailed Quarterly Estimates for Rest of FY 2020

In memory of Turley Muller. You got this one pal.

As of Friday's close of $277.97, AAPL is trading at a 18.0x multiple on my FY21 EPS estimate (16.9x when excluding FY21 net cash and dividends).

I have no way of figuring out the impact to global demand from various COVID-19 containment and mitigation policies in over 130 countries, neither today nor in a month when I would normally publish these estimates. In fact, I don't think even Apple itself can, so I'm not expecting them to provide guidance for next quarter.

I don't think Chinese manufacturing was significantly affected beyond a month or so, but the worldwide network of component supply dependencies and the demand uncertainty probably means Apple should be cautious in ramping production of existing and new products until most of the world has gone through this disruption. The flip side is a likely boost to Services revenue and possibly overall margins so long as HW product margins are not affected too much. Also, since demand is not destroyed but postponed, the rebound next year should be quite impressive, even spilling into 2022.

Tuesday, January 21, 2020

Fiscal 1Q 2020 Final Estimates

As of Friday's close of $318.73, AAPL is trading at a 22.0x multiple on my next-twelve-months EPS estimate (20.5x when excluding NTM net cash and dividends).

What's a fair multiple? I've dealt with this question several times before, so not going to dwell too much on justifying this move. I just wrote 6 long paragraphs on how P/E multiples are convenient but unreliable, a popular but widely misunderstood oversimplification of proper valuation theory, how multiples do relate to DCF modeling, its pitfalls (both PE and DCF), how I've tracked their empirical usefulness over the years, and on and on piling it with thick layers of much dull and dubious import. So I deleted all that (you're welcome).

My model's trailing multiple is up to 12x by now, and revised to aim for 18x over next 2-3 years (was going for 15x over 3-5y). So it goes higher faster. This remains relatively conservative (and likely rises too slow compared to market swiftness in rerating AAPL) given broad market forward multiples still higher: S&P 500 at 18.7, Tech 22, Cons. Staples 20, Cons. Disc. 22.3 (but beware all these are multi-decade highs). And peer mega tera cap tech still much higher.

Saturday, October 19, 2019

Fiscal 4Q 2019 Final Estimates

As of Friday's close of $236.41, AAPL is trading at a 17.8x multiple on my next-twelve-months EPS estimate (16.2x when excluding NTM net cash and dividends).

After a brief panic early this year, market is back at previous-2-years-or-so trend of looking ahead a couple of years and pricing in expectations of mid-high single digit growth, mostly driven by more efficient balance sheet and narrative shift to services—even if new ones will take several years to bear fruit—and against loud noise from trade and threats of regulation. This has allowed for a valuation gradually inching up to broad market multiples for the first time in at least 12 years.

Given this gradually more positive (or rather less negative) sentiment I'm extending my valuation multiple expansion towards 15x (was aiming for 14x) forward-looking EPS plus net cash and dividends over the next 3-5 years. Currently at just 12.5x up from 10x 2.5 years ago, and one point per year expansion rate beginning to slow down after next year.

Attention to mainstream user needs is a great tactical move on this pre-5G cycle: photography, battery life, speed, and price will sell more iPhones. Free exclusive content is just a nice perk for now but eventually a strong strategic advantage if they have a hit or two.

Detailed estimates:

3mo ending Sep19  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   62.9     -  2.83
Apple guide low    61.0  37.5  2.66*
Apple guide high   64.0  38.5  2.96*
My estimates       63.8  38.3  2.93 (4.52b shares)