Monday, April 24, 2017

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 analyses 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)


3mo ending Jun-2017  Rev($M)  GM(%)   EPS($)
-------------------  -------  -----   ------
Analysts consensus    45,610      -    1.62
Apple guide low (e)   44,000   38.5    1.55*
Apple guide high(e)   46,000   39.5    1.71*
My estimates          46,387   39.5    1.74 (5.17b shares)

*EPS guidance ranges derived from other figures provided
 by Apple and diluted shares outstanding estimated by me


12m ending Sep-2017  Rev($M)  EPS($)
-------------------  -------  ------
Analysts consensus   228,600   8.96
My estimates         230,904   9.28


Valuation (fwd-12mo from)  EPS($)   Y/Y  10x  Cash*  Div  Tot
-------------------------  ------  ----  ---  ----  ----  ---
Trailing       (Apr-2016)    8.54   -5%   85    29  2.28  117
Fair Value     (Apr-2017)   10.39   22%  104    32  2.48  138
1yr Target     (Apr-2018)   11.04    6%  110    37  2.64  150

* Cash per share balance net of long-term debt


(click to enlarge)

F2Q17 Revenue breakdown:
iPhone    34,594 (52.0 × $665)
iPad       3,491 ( 8.5 × $411)
Mac        5,669 ( 4.3 × $1,318)
Services   7,332
Other      2,603 ( 3.0 × $395 = 1,185 Watch)

Income statement:
Revenue   53,689
COGS     (32,775)
GM        20,914  39.0%

OpEx     ( 6,538)
OpInc     14,376  26.8%

OIE          438
Pre-tax   14,814

Tax      ( 3,852) 26.0%
NetInc    10,963  20.4%

Shares     5,240
EPS        $2.09

(amounts in millions except $ASP, $EPS, and ratios%)

1 comment:

Mangy Dog said...

I have the same issue with diversifying away from Apple. When I compare others against AAPL, AAPL almost always looks better. I have a difficult time putting my money in second-rate stocks.