Fiscal 4Q 2017 Final Estimates

As of Friday's market close of $164.05, AAPL is trading at a 15.1x multiple on my next-twelve-months EPS estimate (12.0x when excluding next-12m net cash and div).

I decided to challenge myself by posting my final estimates nearly two months instead of the usual two weeks or so before the report because the events during these two months (keynote, launch, ramp, and report) appear to be some of the most influential for Apple in years, with significant details like precise launch timing, product pricing, reception and supply sufficiency, all helpful in correctly estimating the final few days of Fiscal 2017, the initial shape of the much hyped 2018 supercycle, and a first glimpse into the sort of tough compare arguments looking into 2019 that inevitably will be raised as soon as Q1 guidance is provided (in fact this has already been happening).

It may seem counter-productive to attempt estimates before all the critical events and information are in the past and can get digested and distilled into my model. Why not just do as usual and incorporate it all in mid October? There'd be absolutely no risk to the accuracy of my final estimates by waiting. On the contrary, coming out early leaves the forecast at the mercy of some of my most subjective, perhaps some conservative, others more hopeful, and possibly even a few strained assumptions. Like, what if the launch is on the last two days of Q4 and not the week before? Or what if Apple announces record-smashing pre-orders or sales that would clearly call for adjustments in both Q4 and Q1 numbers? Or if the event disappoints some tech pundits who take it to the interwebs with rage against Apple? (Ok that one's a given, of course.) Maybe some manufacturing glitch turns up in early October and phones start blowing up in flames? OMG! (Even though Samsung came out nearly unscathed from that, Apple would be crucified. But no, that won't happen.) Or, they call it the iFacePhone? *facepalm*

Fiscal 3Q 2017 Final Estimates

As of Friday's market close of $149.04, AAPL is trading at a 14.8x multiple on my next-twelve-months EPS estimate (11.4x when excluding next-12m net cash and div).

I've not much to say that hasn't been said elsewhere. iPhone 7s/7s+/8/Pro/X is the obvious next catalyst, with an event in early Sep as always, 7s/7s+ available end of Sep and 8/Pro/whatever version available in Oct/Nov. Not going to delve into the arguments about potential changes due to new tech. But please do go and read all about it elsewhere.

US Dollar finally weakening should be a relief from last few years relentless FX headwinds, at least for Q4 guidance and Dec quarter. Beyond that it's anyone's guess given the shifting expectations on key US policies. Still not baking in anything regarding tax reform (both foreign and domestic) until a more definite timeline is provided by management. Comments last cc about "sometime this year" were likely a bit premature. Looks like a one-two 2018 story about iPhone supercycle and tax reform.

Fiscal 2019 consensus estimates for at least mid single-digits growth seem key for continued stock appreciation. Those will be publicly available in financial sites after Q4 gets reported (likely on Oct 31). Of course, Dec quarter guidance given that same day is immensely important, but everyone already knows this. Right? Ok. Just remember to also get a peek at 2019 estimates then, and allow a couple weeks for analysts' model updates to trickle through the data services and finally show up in the public sites. In fact, I'll repeat this paragraph verbatim when I post my current quarter estimates around mid-Oct.

Enjoy the Summer. Big, exciting Fall coming!


Detailed estimates:

3mo ending Jun-2017 Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    44,920      -   1.57
Apple guide low       43,500   37.5   1.45*
Apple guide high      45,500   38.5   1.61*
My estimates          45,455   38.6   1.62 (5.22b shares)

Fiscal 2Q 2017 Final Estimates

As of today's market close of $143.64, AAPL is trading at a 13.8x multiple on my next-twelve-months EPS estimate (10.5x when excluding next-12m net cash and div).

For the first time ever I've decided to "collar" ($140-145) at least half of my AAPL position given that it's trading above my FV and not too far from my 12-month target, but mostly because it represents over 80% of my portfolio, so this is the best opportunity I can see for me to diversify. I'd still remain hugely overweight with roughly a 40% AAPL weight (while AAPL just 3.5% of the S&P). The only problem is I have no idea what to do with the proceeds, and most likely would end up reinvesting in AAPL on pullbacks. So much for trying to diversify. This is in no way intended as investment advice for anyone, just a disclosure of my decision. Please do your own due diligence.

I expect an additional $35-40b buyback authorization extended another year to March 2019, and a 9% increase to the quarterly dividend to 62 cents. Still no way for me to confidently model any repatriation plans. Most likely there'd be a big one-time tax gain which would need to be excluded from trailing EPS, so I see no easy way to get this event to affect my valuation model. In reality, it affects the market's perception of the value of the trapped offshore cash, but because I fully exclude it (net cash valued at 100%) in my model, it only shows up as a negative (the cash hit due to the actual repat tax paid). Consider this a sort of built-in conservativeness in my model. Or a flaw, if you prefer. Maybe I'll figure something out when it happens. What would definitely affect my valuation is a permanent reduction of the corporate tax rate, but again, not going to speculate how much lower or when it might happen. We'll have to wait and see how it all pans out.

Next year or two projections are on pretty standard assumptions, just slightly above WS analysts consensus. I'd be much more confident in this whole "supercycle" theory if it weren't so hyped by now. I tend to become a bit skeptic when I see this kind of unoriginal analysis and groupthink in WS and tech media. Can't stand the way everyone hangs it all on the never ending rumor mill. At this point I just want to fast-forward to October and January and get it all over with. Not asking much, just show me at least high single-digit revenue growth and steady margins next year and I'll be happy. One thing worth mentioning is the newly discovered Services growth narrative (yet double-digit growth's been there forever). Even if it just compensates for other products declines (e.g. iPad) this is a big positive since it replaces lower margin with higher margin revenues. Having said that, iPhone is still "it" for now, in terms of meaningful growth.

Detailed estimates:


3mo ending Mar-2017  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    52,970      -   2.02
Apple guide low       51,500   38.0   1.90*
Apple guide high      53,500   39.0   2.07*
My estimates          53,689   39.0   2.09 (5.24b shares)

Fiscal 1Q 2017 Final Estimates

As of today's market close of $120.08, AAPL is trading at a 12.5x multiple on my next-twelve-months EPS estimate (8.9x when excluding next-12m net cash and div).

Not trying to guess the timing and details of whatever foreign cash repatriation deal gets done, or what lower corporate tax rate might apply going forward. Nor am I modeling any "protectionism" effects until more definitive developments occur. Unpredictable policy changes should affect everyone, not just Apple, but of course it is Apple that gets singled out and most mentioned in the media. So, to counter that sentiment I'm doing nothing at all to my model until we hear more, especially from Apple management as new administration "official" announcements seem unreliable.

Sell side analysts revenue estimates for the rest of FY17 and FY18 right now seem slightly optimistic for a change, but likely I'm just being a bit conservative. On the other hand I believe they're slightly low on margins. Feels odd to be so close to consensus for the next year or two but as always I have no problem adjusting if actual reports come higher. In any case, valuation remains quite attractive, of course.


Detailed estimates:

3mo ending Dec-2016  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    77,370      -   3.22
Apple guide low       76,000   38.0   3.09*
Apple guide high      78,000   38.5   3.27*
My estimates          78,050   38.7   3.28 (5.33b shares)