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)


3mo ending Dec18  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   91.8     -  4.84
Apple gde lo (e)   91.0  38.5  4.82*
Apple gde hi (e)   94.0  39.0  5.09*
My estimates       93.6  38.8  5.05 (4.72b shares)

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


12m ending Sep19  Rev$B   $EPS
----------------  -----  -----
Analysts consens  277.2  13.57
My estimates      281.3  14.45


Valuation
Timeframe  NTMfrom   $EPS  Y/Y    x   Val  $*   Div  Tot
---------  -------  -----  ---  ----  ---  --  ----  ---
Trail Val  Oct2017  11.79  28%  10.5  124  24  2.72  150
 Fair Val  Oct2018  14.45  23%  11.5  166  13  3.08  183
1y Target  Oct2019  16.31  13%  12.5  204   6  3.50  214

*Cash per share balance net of long-term debt



F4Q18 Revenue breakdown:
iPhone    36,020 (49.0 × $735)
iPad       4,567 (10.8 × $423)
Mac        7,400 (5.35 × $1,383)
Services   9,922
Other      4,071 (4.85 × $390 = 1,890 Watch)

Income statement:
Revenue   61,980
COGS     (38,207)
GM        23,773  38.4%

OpEx      (8,013)
OpInc     15,760  25.4%

OIE          332
Pre-tax   16,092

Tax       (2,414) 15.0%
NetInc    13,678  22.1%

Shares     4,825
EPS        $2.83

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


[10/19 UPDATE:

By followers' request I'm posting my revised estimates as shown below given that some of my assumptions were wrong, precisely those I commented that I was most uncertain: iPhone pricing and Mac/iPad updates. Essentially, higher Watch sales and iPhone ASPs are offset by slower iPhone unit growth, with some modest longer term effects on installed base-related revenue growth. Mac and iPad pent up demand gets pushed to Q1, postponing the return to mid-low single-digit growth. For last quarter (F4Q18), revenue is $0.1b lower and EPS comes out 0.06 cents higher (but rounds off to one cent higher). As for the current quarter (F1Q19), revenue is $1b higher and EPS 8 cents higher. For FY19 rev/EPS got a boost of $3.6b/$0.16 (1.3%/1.1%) but remain unchanged for FY20 and got cut about 2% longer-term.


F4Q18
Estimate  Oct(e)  Sep(e)  Change  %Chng
--------  ------  ------  ------  -----

Units (millions)
---------------------------------------
iPhone     48.00   49.00   -1.00  -2.0%
iPad       10.00   10.80   -0.80  -7.4%
Mac         5.00    5.35   -0.35  -6.5%
Watch       5.00    4.85    0.15   3.1%

ASPs ($)
---------------------------------------
iPhone       753     735      18   2.4%
iPad         422     423      -1  -0.2%
Mac        1,436   1,383      53   3.8%
Watch        394     390       4   1.1%

Revenue breakdown ($Billions)
---------------------------------------
iPhone      36.1    36.0    0.12   0.3%
iPad         4.2     4.6   -0.35  -7.6%
Mac          7.2     7.4   -0.22  -3.0%
Watch        2.0     1.9    0.08   4.2%
Services    10.2     9.9    0.29   2.9%
Other*       4.1     4.1    0.06   1.4%
* includes Watch
---------------------------------------
Revenue    61.88   61.98   -0.10  -0.2%
EPS ($)     2.84    2.83    0.00   0.0%

F1Q19 guidance midpoint
---------------------------------------
Rev ($B)   93.50   92.50    1.00   1.1%
EPS ($)     5.03    4.95    0.08   1.6%

F1Q19 estimates
---------------------------------------
Rev ($B)   94.67   93.64    1.03   1.1%
EPS ($)     5.13    5.05    0.08   1.6%


/UPDATE]

No comments: