Fiscal 2Q 2012 Final Estimates

At today's closing price of $628.44, AAPL is trading at a 10.4 multiple on my forward EPS (8.5x ex-cash).

The valuation metrics provided below are intended to track the market price of the shares at the given timeframes, and thus exclude any dividend paid up to that point in time because the dividend is subtracted from the cash balance, as it should. However, because my underlying theory is that shares should be (roughly) valued on a forward-one-year basis, to compensate for this one needs to add back into the value the next 12-months worth of dividends.

For example, the current fair value is based on 10 times the EPS estimate of $60.39 for the next 12 months which gives $604, plus the estimated cash balance at the end of the next 12 months of $165/sh (which already excludes any dividends paid over that period), and adding back the $8 worth of dividends paid over the next 12 months which a buyer today would in fact be entitled to, resulting in a $777 fair value. The one-year target is computed similarly given the annual EPS, dividends and cash balance for the 12 months ending 2 years from now.

I consider the "trailing" metric relevant for the past 3 to next 3 months, the "fair value" metric relevant for roughly the next 3 to 9 months, and the "1yr target" metric relevant for roughly the next 12-18 months. Of course this is all my own subjective/empirical sense.

I'm ramping up the dividends as roughly 20% of trailing EPS (or about half of domestic earnings). This is consistent with the $2.65 quarterly dividend initially planned, and yields about 1.3% in the long term assuming my fair value does play out.

Additionally, buybacks necessary to keep share count from further increasing (at about 949m shares by the end of the current fiscal year) have also been discounted from the estimated future cash balances, and incidentally these amounts are projected to be substantially higher than Apple management has estimated (about $5.4b and $18b vs. $4b and $10b estimated by Apple for the first year and 3 years, respectively). This discrepancy is perhaps mainly due to the higher current and future share price as I've projected it, although my projected buybacks could end up being too aggressive since Apple could choose to allow a bit more dilution for another year or two. Of course if the market doesn't accomodate to my valuation model and prices AAPL lower than I project, then buybacks would be cheaper, the cash balance higher, and dilution prevented as expected after all.

Keep in mind these cash balance/dividends/buybacks are all very subtle effects and the main component of valuation remains the EPS projection and the multiple on it.

As for this quarter's numbers, after seeing what other independent analyst are estimating I feel mine came out a bit more on the conservative side. I do hope I'm low, but don't expect it to be by much. Here are the details:

3mo ending Mar-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         32,500     8.50
Analysts consensus     36,200     9.86
Deagol estimates       41,136    12.31


3mo ending Jun-2012   Rev($M)   EPS($)
-------------------   -------   ------
Apple guide (est.)     37,500     9.80
Analysts consensus     37,050     9.86
Deagol estimates       43,222    12.62


12m ending Sep-2013   Rev($M)   EPS($)
-------------------   -------   ------
Analysts consensus    189,810    50.45
Deagol estimates      240,160    70.08


Valuation (12mo ending on)   EPS($)  Y/Y  10x  Cash  Div   Tot
--------------------------   ------  ---  ---  ----  ---  ----
Trailing        (Mar-2012)    41.03  96%  410   116    -   526
Fair value      (Mar-2013)    60.39  47%  604   165    8   777
1yr target      (Mar-2014)    79.58  32%  796   224   13  1033


Revenue breakdown ($M):
Mac        6,203 ( 4,850 × $1,279)
iPod       1,054 ( 6,500 × $162)
iPhone    22,657 (35,000 × $647)
iPad       7,398 (12,500 × $592)
iTunes     2,295
Periph       713
Software     816

Income statement ($M):
Revenue   41,136
COGS      22,596
GM        18,540
OpEx       3,151
OpInc     15,388
OI&E         110
Pre-tax   15,499
Tax        3,875
NetInc    11,624
Shrs.        944
EPS       $12.31

Ratios:
GM%        45.1%
OpInc%     37.4%
Tax%       25.0%
NetInc%    28.3%