Tuesday, April 10, 2012

Fiscal 2Q 2012 Final Estimates

At today's closing price of $628.44, AAPL is trading at a 10.4 multiple on my forward EPS (8.5x ex-cash).

The valuation metrics provided below are intended to track the market price of the shares at the given timeframes, and thus exclude any dividend paid up to that point in time because the dividend is subtracted from the cash balance, as it should. However, because my underlying theory is that shares should be (roughly) valued on a forward-one-year basis, to compensate for this one needs to add back into the value the next 12-months worth of dividends.

For example, the current fair value is based on 10 times the EPS estimate of $60.39 for the next 12 months which gives $604, plus the estimated cash balance at the end of the next 12 months of $165/sh (which already excludes any dividends paid over that period), and adding back the $8 worth of dividends paid over the next 12 months which a buyer today would in fact be entitled to, resulting in a $777 fair value. The one-year target is computed similarly given the annual EPS, dividends and cash balance for the 12 months ending 2 years from now.

I consider the "trailing" metric relevant for the past 3 to next 3 months, the "fair value" metric relevant for roughly the next 3 to 9 months, and the "1yr target" metric relevant for roughly the next 12-18 months. Of course this is all my own subjective/empirical sense.

I'm ramping up the dividends as roughly 20% of trailing EPS (or about half of domestic earnings). This is consistent with the $2.65 quarterly dividend initially planned, and yields about 1.3% in the long term assuming my fair value does play out.

Additionally, buybacks necessary to keep share count from further increasing (at about 949m shares by the end of the current fiscal year) have also been discounted from the estimated future cash balances, and incidentally these amounts are projected to be substantially higher than Apple management has estimated (about $5.4b and $18b vs. $4b and $10b estimated by Apple for the first year and 3 years, respectively). This discrepancy is perhaps mainly due to the higher current and future share price as I've projected it, although my projected buybacks could end up being too aggressive since Apple could choose to allow a bit more dilution for another year or two. Of course if the market doesn't accomodate to my valuation model and prices AAPL lower than I project, then buybacks would be cheaper, the cash balance higher, and dilution prevented as expected after all.

Keep in mind these cash balance/dividends/buybacks are all very subtle effects and the main component of valuation remains the EPS projection and the multiple on it.

As for this quarter's numbers, after seeing what other independent analyst are estimating I feel mine came out a bit more on the conservative side. I do hope I'm low, but don't expect it to be by much. Here are the details:

3mo ending Mar-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         32,500     8.50
Analysts consensus     36,200     9.86
Deagol estimates       41,136    12.31

3mo ending Jun-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guide (est.)     37,500     9.80
Analysts consensus     37,050     9.86
Deagol estimates       43,222    12.62

12m ending Sep-2013   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus    189,810    50.45
Deagol estimates      240,160    70.08

Valuation (12mo ending on)   EPS($)  Y/Y  10x  Cash  Div   Tot
--------------------------   ------  ---  ---  ----  ---  ----
Trailing        (Mar-2012)    41.03  96%  410   116    -   526
Fair value      (Mar-2013)    60.39  47%  604   165    8   777
1yr target      (Mar-2014)    79.58  32%  796   224   13  1033

Revenue breakdown ($M):
Mac        6,203 ( 4,850 × $1,279)
iPod       1,054 ( 6,500 × $162)
iPhone    22,657 (35,000 × $647)
iPad       7,398 (12,500 × $592)
iTunes     2,295
Periph       713
Software     816

Income statement ($M):
Revenue   41,136
COGS      22,596
GM        18,540
OpEx       3,151
OpInc     15,388
OI&E         110
Pre-tax   15,499
Tax        3,875
NetInc    11,624
Shrs.        944
EPS       $12.31

GM%        45.1%
OpInc%     37.4%
Tax%       25.0%
NetInc%    28.3%


Michel C said...

Nice work. We are almost at the same numbers i'm at 12,29$. Specially like your MArch 2014 numbers at only a 10x on eps...make me salivate!

big daddy kane said...

Deag, thanks for all you do. For what it's worth, I'm going to say that your iPhone number is a pinch low and your GM is a pinch high. We'll see in a few days.

JavaJack said...

Thanks for this, Daniel. I've been checking every day waiting for you to post your results. Very exciting estimates.


fivetonsflax said...

I am wondering about the "3mo ending Jun-2012" numbers. You have Apple guiding slightly higher than analysts for revenue, but lower for earnings per share. Is that correct?

Daniel Tello said...

Correct. But the relative differences are really minuscule, and the balance could easily tilt the other way.

Andy Assareh said...

So you have FY13 (12m ending Sep-2013) EPS at $70. Your FY12 projections for Mar and Jun 12 indicate FY12 EPS of at least $50 and independents are expecting $52-$56. Am I missing something, or are you projecting ~35% EPS growth between FY12 and FY13? (down from 83% in FY11 and ~90% this year)

Daniel Tello said...

Andy, that's almost exactly right (33%). The main difficulty I'm having with 2013 is thinking beyond iPhone 5 (or whatever its name is) and justifying much more than 50m iPhone quarters (25m+ iPads/q are easier).

The iPhone installed base will be nearing 300m, and smartphone penetration far beyond 50% will become tougher in the US and Europe. China is a great potential, but some wrinkles there need to be ironed out. India and the whole pre-pay market must be addressed somehow in order to move more than 200m iPhones as soon as next year.

nsm said...

How are feeling about iPhone numbers given the ATT and Verizon numbers? Any concerns that your numbers might be a little high?

Jared said...

Bravo predicting $12.31 EPS vs actual EPS of $12.30

Crispin said...

I'd say he should be feeling pretty good about the iPhone numbers, he just about nailed it. Congratulations Deagol on an excellent job putting all the pros to shame!

Anonymous said...

Congratulations... 12.3, 35m iphones, 12m ipads... wow!

JavaJack said...

Nice work, Daniel.


big daddy kane said...

Bravo. Your service is a true asset to everyone with a cent invested in AAPL. Thanks Deag.

Fabcara said...

Congratulations for best predicting Apple 2Q, you are ranked as the first analyst by CNN, take a look: http://tech.fortune.cnn.com/2012/04/25/apple-q2-misses-high-and-low-but-the-best-bloggers-nailed-it

mieswall said...

Congratulations again.
Do you maintain your next Q numbers, given that iPhone sales would be less (further impacted for the iPhone 5 effect, remember Q4/11), GM should be difficult to maintain, but iPad and Macs probably higher?
Another very notable issue is the overwhelming market share on smartphones, according AT&T and VZ reports. The whole phone market is shrinking these months in USA?

Miguel said...

Wow! Felicitaciones. You nailed it!


Daniel Tello said...

On July 6, 2012 7:58 PM Stock Trading Kid said...
Nice work on the estimates. The China market, is such a huge potential for growth, sooner or later that market will open up. It's just a matter of time.

On a technical level, the stock trend is still very bullish. No signs of heavy unloading in Apple.

Thanks for your input.

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