Monday, October 12, 2015

Fiscal 4Q 2015 Final Estimates

As of today's market close of $111.58, AAPL now trades at a 10.4x multiple on my next-twelve-months EPS estimate (7.4x excluding next-12m cash and div).

Slightly revised FY16 rev/EPS down by ~2/3% mostly on Watch. Still plenty of upside in next year consensus rev/EPS growth of 5/7% (I'm at 11/17%), while market pricing in flat or lower EPS despite further buybacks.

Detailed estimates:

3mo ending Sep-2015  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    51,060          1.88
Apple guide low       49,000   38.5   1.72*
Apple guide high      51,000   39.5   1.89*
Deagol estimates      51,902   39.6   1.94 (5.72b shares)

3mo ending Dec-2015  Rev($M)  GM(%)   EPS($)
-------------------  -------  -----   ------
Analysts consensus    76,930           3.20
Apple guide low (e)   74,000   39.0    2.98*
Apple guide high(e)   78,000   40.0    3.29*
Deagol estimates      78,167   40.0    3.29 (5.68b shares)

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

12m ending Sep-2016  Rev($M)  EPS($)
-------------------  -------  ------
Analysts consensus   245,140   9.79
Deagol estimates     260,245  10.72

Valuation (fwd-12mo from)  EPS($)  Y/Y  10x  Cash*  Div  Tot
-------------------------  ------  ---  ---  ----  ----  ---
Trailing       (Oct-2014)    9.18  43%   92    26  1.98  120
Fair value     (Oct-2015)   10.72  17%  107    31  2.20  140
1yr target     (Oct-2016)   12.36  15%  124    38  2.50  164

* Cash/share balance net of long-term debt

(click to enlarge)
F4Q15 Revenue breakdown (millions, except ASP): iPhone 31,795 (49.0 × $649) iPad 4,193 (10.0 × $419) Mac 6,990 (5.75 × $1,216) Services 4,951 Other 3,974 ( 3.6 × $591 = 2,126 Watch) Income statement (millions, except EPS): Revenue 51,902 COGS 31,373 GM 20,529 39.6% OpEx 5,922 OpInc 14,607 28.1% OI&E 419 Pre-tax 15,026 Tax 3,952 26.3% NetInc 11,074 21.3% Shares 5,721 EPS $ 1.94


Michel C said...

question regarding your share count. At the end of Q3 Apple was at 5,77 share diluted. What is our assumption to end Q4 at 5,72. Don't you think that at current price Apple would have bought back more? In 2014 they had retire about 7% of the shares Doing the same math We should get around 5.69

Daniel Tello said...

Thanks for the question Michel. A few points:

1. Last 8 quarters' average spend on buyback is ~$9b/qtr, YTD is $7.33b/qtr. I'm modeling $7.5b at around $119/sh retiring ~63m shrs. This includes about 14m shares issued, so net reduction is about 49m shares.

2. In 2014 the average share price was much lower, this quarter the average was $116 as shown in the chart. I do hope they acted oportunistically in the open market under $110, but not counting on it just to be safe.

3. Cash available for buybacks (domestic) is running quite low. The last 2 quarters, fiscal Q3 and Q4 are the lowest cash-generating quarters in Apple's highly seasonal cycle. That means they must resort to the debt markets to fund any buybacks after any cash needed to run the business, execute the end-of-year product launches and manufacturing transition in advance, and pay dividends. They've executed a couple of debt issuances this quarter worth a few billion and I have them issuing a couple more $b in commercial paper. Of course, all this can be covered with the cash windfall coming this current quarter, but I don't think they should let debt spike too much, even if it's short term.

Anyway, the difference between your 5.69b shares suggestion and my 5.72b shares is just half a percent, or 1 cent per share worth of EPS. If you wanted to fault me for being conservative, there are other assumptions I've made which would yield much heftier upside (e.g. iPhone ASP or gross margins).

Daniel Tello said...

"this quarter the average was $116"

I meant to say last quarter, of course.

Michel C said...

Thanks for the info

Andrea Gambetti said...

Thanks Daniel.
I think your September table may be off. The company issued guidance of $49b to $51b for the quarter.

Daniel Tello said...

Good catch Andrea, thanks! It slipped as I changed the figures from the previous post, fixed now.

Anonymous said...

First, thanks for all the work you put into your model and sharing it with us.

I agree with you current fair value of $140/sh. What is your best guess at why the stock price is currently about 17% below "fair Value" and do you think it will reach fair value in the near term?

Thanks again!

Daniel Tello said...

Anon, in my opinion it's quite simple: the market dorsn't think Apple can grow above the nose-bleeding FY15 numbers. WS analysts expect 5% higher rev for FY16, 1.5% for Q1 iPhones. A bit higher on EPS only due to buybacks which some wave off as smoke and mirror financial engineering tricks. But market is even more skeptic than analysts (this always the case) so it keeps it simple and sees flat or even declining fundamentals from here.

So if you assume flat revenue and EPS next few years, see Watch as not moving the needle (as conventional wisdom invariably asserts) or even worse a flop, and Apple car as a moonshot too far in the future to take seriously, and do DCF for zero growth with a sensible discount rate to account for higher risk-free interest rates, then you'd find that a 10x multiple on current EPS is a pretty reasonable model. So, the $120 trailing valuation would be justified if you think all those premises are true, as many do today.

I don't. As I mention in the post I'm modeling 17/15% EPS growth for FY16/17. Of course I could be wrong like in 2012-13 (but at least not as bad as analysts/market were then).

Daniel Tello said...