Monday, January 18, 2010

Fiscal 1Q 2010 Final Estimates

PED's now probably back from vacation and if he links here, well, thanks Philip. And a warm welcome to anyone coming from Apple 2.0. I appreciate being included with all the other big-shot analysts in the previews there over the last couple of weeks for our Mac, iPhone, and iPod unit estimates.

Final numbers below. But first I'd like to update that "Filling the GAAP" thing I did last time, except this time I've decided to do it on a trailing basis to avoid the confusion of having my estimates creep back into the past (although in my opinion the PEs are more stable on a forward-looking basis). The accounting "arbitrage" situation is a little more promising given the improved iPhone estimates. But still, when using forward valuation, the biggest opportunity remains in the past. However, the market still hasn't caught up with my forward valuation (it's getting close though) which means there's a nice $80 upside before AAPL starts trading close to my non-GAAP fair value. That should be the value NOW, forget about the 1-year target. Click to enlarge:

3mo ending Dec-2009 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Apple guidance 11.45 N/A 1.74 N/A
Analysts consensus 12.01 ? 2.05 ?
Deagol estimates 12.47 15.02 2.35 3.74

3mo ending Mar-2010 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Analysts consensus 10.33 ? 1.75 ?
Deagol estimates 10.69 11.34 1.94 2.29
Apple guidance (e) 10.15 10.90 1.51 1.85

12mo ending Sep-2010 Revenue($B) EPS($)
. ------------- ------------
------------------ ----- ------ ---- ------
Analysts consensus 45.05 ? 7.85 ?
Deagol estimates 46.67 51.50 8.63 11.18

Stock valuation: EPS(e) PPS(25x)
. ------------ ------------
Window 12mo starting GAAP n-GAAP GAAP n-GAAP
------ ------------- ---- ------ ---- ------
Trailing Apr-09 7.46 11.29 187 282
Fair value Apr-10 9.70 11.66 243 292
1-year target Jan-11 11.53 13.42 288 335

Revenue breakdown:
Mac 4,312 ( 3.184M @ $1,354)
iPhone 2,815 ( 8.650M @ $ 590)
iPod 3,170 (20.500M @ $ 155)
Music 1,177
Software 604
Periph 392
-------- ------
Total 12,469

Income statement:
Revenue 12,469
COGS 7,893
GM 4,576
OpEx 1,625
OpInc 2,951
OI&E 55
Pre-tax 3,006
Tax 857
NetInc 2,149
Shrs. 915
EPS 2.35

GM% 36.7%
OpInc% 23.7%
Tax% 28.5%
NetInc% 17.2%

PS: Right now I'm kinda sick of forums so if anyone cares feel free to post this in either/both. Apologies if anyone misses it.


JavaJack said...

Thanks for your posts. I wish they were more frequent, actually. I'm not an accountant so would it be possible to summarize what all the projections mean in a nutshell. As an owner of Apple stock I would like to know. Your GAAP chart would seem to indicate that it is soon time to move out of the stock, at least for awhile.

Anonymous said...

Thanks for posting!!! my valuation ranges were 268 to 346 with most methods higher than this. Top end is non-gaap based.

Daniel Tello said...

Javajack, I think the post subheadings are quite clear. I include revenue and EPS estimates (GAAP and non-GAAP, keep in mind Apple soon will start using the current non-GAAP as their "new GAAP") for last quarter to be reported next Monday, then for the current quarter to be reported in April (and estimate what Apple might say about guidance), and for the 2010 Fiscal Year ending in September, all with comparisons to available analysts consensus estimates. If you don't understand what those are, perhaps you should not invest in individual stock and rather should rely on the assistance of a personal money manager.

After those, there's my stock valuation metrics. This is perhaps the one thing that might "summarize in a nutshell" what all the other stuff means to me. It's a simple assumption: at any time past, present or foreseeable future (at least as long as Apple's EPS growth is, as now, much higher than 15%) AAPL should trade at 25 times the forward 12 months EPS. For that I provide three time windows: 1. Trailing (based on current trailing EPS) is the price AAPL should have traded over the last 12 months. 2. Fair value (based on the next 4 quarter's EPS) is the price AAPL should be trading now (until March) and 3. The 1-year target (based on the 5th to 8th quarter from now cumulative EPS) which AAPL should reach over the next 6-18 months. For each of those timeframes, I provide both GAAP and non-GAAP figures and targets. Again, at some point between now and September Apple will switch to a new accounting system that allows them to report numbers similar to what we now call non-GAAP metrics.

After that, I offer the last quarter's revenue breakdown into each product line, and a run of the income statement calculations used to derive EPS from revenue. Here's where you'll find such critical metrics such as Gross Margin % and costs and Net Income and how much share dilution from employees options vesting and such things. I think for now you can focus on revenue, EPS and GM% to get a feel for how Apple makes money.

Finally, about the chart, no it doesn't indicate that you should move out of the stock, not soon nor later. What the chart indicates is the discrepancy over time between the GAAP and non-GAAP metrics. The gradual reduction of the current discrepancy which currently stands at close to 60% in price simply means that I expect the stock to maintain it's current GAAP PE at over 30 (blue line) while the non-GAAP PE catches up. Because the E in the PE (P/E) will continue to grow at 20% or higher for the next few years, in order to maintain the same PE the price must increase in a similar percentage. This catchup or convergence of the two metrics is what I call "filling the GAAP." By no means should you look at the sloping downward shadow in the future and interpret it as a declining stock price. Where the legend says "ttm % diff", I mean that represents the trailing-twelve month (ttm) percentage difference between the other two colored lines.

Hope you're able to follow my explanations. Please keep asking questions of you're not sure how to interpret any figure or chart.

Ha! record for the longest comment ever. :)

Daniel Tello said...

Sorry for the spelling errors and repeated words above. Hopefully those don't interfere too much with my explanations (I wish we could edit comments).

JavaJack said...

thanks very much for the detailed feedback. Much appreciated.


Unknown said...

Very impressive analysis and patient comments, all very helpful.

Turley Muller said...

ooo Ad free, LOL. Love your work Deag....

Daniel Tello said...

haha thanks Turley, big fan of your work too.

JavaJack said...

I thought this was an interesting article. I knew the markets were down a bit Friday but Apple took a particularly large hit. Here's the speculation:

Jasmin said...

Thank you very much. I just discovered your blog and will be coming back. I´m no expert but I have been buying and selling AAPL since 1996 and now trade only that. Of course, if I still had what I bought in 96...but I usually just sell about half the stock when it doubles and somehow it just keeps growing back! Sometimes when I feel it is too low, I buy. I love Apple products and keep browsing blogs on the net. I am always amazed how negative many analysts are, but it seems times are changing...