Friday, September 30, 2011

Fiscal 4Q 2011 Final Estimates

AAPL now trading at [$381.32] 8.6 times my forward-looking EPS estimate (6.6x ex-cash). Here are some comparisons with previous periods:

Jul 18, 2011: [at $374.65] 10.8 times my forward-looking EPS estimate (8.6x after excluding cash)
Mar 21, 2011: [at $330.67] 10.5 times my fwd EPS estimate (8.3x ex-cash)
Dec 23, 2010: [at $323.60] 12.9 times my fwd EPS estimate (10.5x after excluding cash)
Oct 02, 2010: [at $282.52] 12.7 times my FY2011 EPS (10.5x after excluding cash)
Jun 30, 2010: [at $251.53] 12.1 times my FY2011 EPS (9.8x after excluding cash)

An alternative long-term valuation metric I introduced in my "Get AAPL for free" post from July, which had Apple's cash balance matching the then current share price within 4.5 to 5 years is maintained, with Apple's cash estimated at $381.16 per share for the quarter ending in June 2016. As I pointed out then, it's a very conservative scenario that does not assume any new product category and now involves even more cautiousness with EPS growth slowing down to 10% by then (was 15%). Just trying to somehow align that base case with the current valuation multiple and its implied market sentiment.

The rest of the details:

3mo ending Sep-2011   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         25,000     5.50
Analysts consensus     29,110     7.15
Deagol estimates       32,097     8.75

3mo ending Dec-2011   Rev($M)   EPS($)
-------------------   -------   ------
Apple guide (est.)     33,000     7.80
Analysts consensus     35,900     8.78
Deagol estimates       40,283    11.07

12m ending Sep-2012   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus    138,120    32.68
Deagol estimates      161,113    44.14

Valuation (12mo ending on)   EPS($)  Y/Y  10x  Cash  Tot
--------------------------   ------  ---  ---  ----  ---
Trailing        (Sep-2011)    29.37  94%  294    89  383
Fair value      (Sep-2012)    44.14  50%  441   132  574
1yr target      (Sep-2013)    57.32  30%  573   187  761

Revenue breakdown ($M):
Mac        5,845 ( 4,650 × $1,257)
iPod       1,218 ( 7,000 × $174)
iPhone    14,104 (22,100 × $638)
iPad       7,675 (11,800 × $650)
iTunes     1,809
Periph       562
Software     884

Income statement ($M):
Revenue   32,097
COGS      18,697
GM        13,400
OpEx       2,769
OpInc     10,631
OI&E          95
Pre-tax   10,726
Tax        2,467
NetInc     8,259
Shrs.        944
EPS        $8.75

GM%        41.7%
OpInc%     33.1%
Tax%       23.0%
NetInc%    25.7%

Check out other estimates (regularly updated over the next 2 weeks):

PED - Our Apple whisper numbers
PED - Apple expected to report record Mac sales this week
PED - iPad sales estimates for Q4 range from 8.8 to 14.8 million
PED - How many iPhones did Apple sell last quarter?
PED - Wall Street still doesn't understand Apple
Nicu Mihalache - EPS estimates
PED - Apple's Q4 2011: A tale of three wildly different estimates
Asymco - Estimates for Apple’s fourth fiscal quarter: Entering the post-P/E era


Roel said...


Thanks for sharing your estimates.

I like your numbers, growth looks great and they look much higher than the pro's (as always), but I must be missing something. Revenue has grown a lot more than 12.5% from Qtr3 to Qtr4 in the last two years.

Frankly, I think you are a little low on your iPhone unit forecast. I know iPhone 5 is coming, but demand is still high in most countries, including China.

I'm hoping EPS clears 9 for another big jump in share price.

Horace Dediu said...

I have a higher number for the iPhone but I'm not confident at all in it. I could easily accept your figure. Do you particular insight which leads you to believe the unit number?

Anonymous said...

Thanks, Daniel. Your work is appreciated.


Anonymous said...

Thanks for sharing all the hard work. I was surprised the consensus GM was not higher. My reasoning is foreign sales are increasing faster than domestic sales. Foreign sales have a higher sales price, over compensating for the exchange rate, and nearly all sales in China , for example are made in-house. Taxes are lower with foreign sales and actual sales expenses, i.e. shipping, labor etc are much lower. The longer a product is on the market, fixed costs, R&D have already been expensed. components become cheaper with time and with the increased volume. I was expecting something in the 42.8% area for GM.

Daniel Tello said...

Roel and Horace, I can't say I'm completely confident in my iPhone estimate, but this is nothing new. I based it on a combination of current y/y unit growth and historical sequential growth of previous transitional quarters which had always occurred on 3Q, not 4Q as now. This "transitional" premise involves a somewhat fuzzy assumption that about half the channel inventory gets drawn down.

Channel inventory levels at the end of June were 4 to 6 weeks of estimated forward demand, or more precisely 5.9m units as stated in the last conference call. Thus I'm assuming roughly 3m units of drawdown. However, it's quite possible the drawdown didn't start before the quarter ended, especially if there's a couple of weeks between the announcement and the units shipping. I'm assuming immediate availability at least as preorders and units shipping by next Friday at the latest, all of which could be wrong and invalidate my "transitional" inventory adjustment assumptions.

capa, you're very welcome and your support is appreciated as well.

Anon, yes international sales are increasing, and I agree in general those involve higher pricing (after excluding VAT) and lower corporate taxes, which on a sequential basis would be a positive. However, pricing is not adjusted for currency exchange rates (at least not on a sequential basis).

A strong dollar (as we saw only for last month) impacts GM because foreign ASPs are lower when converted to dollars yet gross costs (components, manufacturing, shipping) remains constant since those are most likely negotiated in dollars or yuan (Foxconn) which is mostly pegged to the dollar. So as Apple's foreign sales grows as a percentage of total sales, this negative FX effect on a stronger dollar gets more pronounced.

Another issue slightly reducing ASPs but not costs (and thus impacting margins) are new deferrals for every Mac, iPhone, iPad, and iPod touch units due to Lion software upgrades and iCloud capabilities in all these devices. This effect is very subtle and will go away in a few quarters, but for this first full quarter (these deferrals started on June 6 so didn't affect the prior quarter) the impact would be more noticeable, although still practically insignificant.

Apple does hedge for currency fluctuations affecting their GM, but gains (or losses) on those hedges are reflected on the OI&E line. The strong dollar by the end of the quarter is the main reason I have boosted OI&E from the 50m that Apple guided for in back in June, when the dollar was much weaker.

JavaJack said...

Any comment on the rumors floating around that ipad component suppliers have been slowed by 30% as ipad sales level out. Can there be any truth to this or that the new Kindle will have much impact at the low entry price. My feeling is that will fall into a different consumers hands but could it lower the price on iPads in the future and cut margins? Apple still looks like a great buy even at today's $375.

sb said...

JavaJack - you're right about AAPL being a buy at 375. In fact, I just bought some :).

Daegol - Thanks for posting your estimates.

Anonymous said...


You are correct that the USD index has strengthened this past quarter, but the USD versus the yuan/renminbi has continued to strengthen vs the USD. Thus, sales of apple products in china should have a positive fx impact not negative if I am not mistaken. Please confirm if I am correct as I am not certain.


Daniel Tello said...

For the 13% or so contribution from China sales, yes a strong yuan is a positive, although very a slight one (roughly 1% appreciation of the yuan). But for the overweighted contribution to gross costs tied to China it's a negative that outweighs the positive (still very slight impact). The much stronger JPY, also with a high share of costs but small share of overall sales, has a bigger (negative) impact to GM.

But the greatest FX impact remains the GBP and the EUR (contribute about 25% of sales and practically none of the gross costs), and the AUD to a lesser extent, all of which dropped 5% to 8% in September.

To reiterate: a strong yuan can't be a net positive to GM until the relative share of sales from China exceeds the relative share of gross costs from China. For now and the foreseeable future this isn't the case. Note this does not mean that increasing sales from China (regardless of the yuan) have a negative impact on GM, quite the contrary.

Turley Muller said...

I think iPhone unit sales might have been capped by lack of supply. It's possible Apple had originally intended to launch new iPhone in Sept, as they mentioned a product transition that would affect GM. Thus, production orders for IP4 & 3GS might not have been sufficient to cover the full quarter.

I have seen some evidence to support that. My checks have shown some inventory shortages. Thus, I think shipments didn't increase meaningfully from June to Sept.

Daniel, I think your Inventory drawdown assumption of 3M is very possible. I wouldn't expect much of a drawdown since previous launches didn't see much destocking. However, this time it appears that Apple wasn't able to keep the channel adequately stocked.

I think a major driver of iPhone demand has been unlocked units on China Mobile. Potentially 3M for the quarter vs 2M+ last quarter.