Saturday, January 16, 2016

Fiscal 1Q 2016 Final Estimates

As of Friday's market close of $97.13, AAPL is trading at a 9.1x multiple on my next-twelve-months EPS estimate (6.0x when excluding next-12m net cash and div).

On last quarter, $19b in net income says enough (details below). Looking forward, I'm revising my next 12-18 months valuation target from $164 to $157 due to lowered estimated revenue and EPS (FY16/17 by roughly 4/5%) mostly on iPhone (now flat/single-digit unit sell-through growth).

Promising guidance: Contrary to some recent sell-side reports, I believe iPhone channel inventories as of end of September were still at or near the lower end of the 5-7 weeks range of forward-looking demand. Another week of channel fill (representing 3-4m units spread through 1H16) would be appropriate, and even adding 6-7m would not breach the upper 7 week limit. This would support flat sell-through (any additional demand e.g. from rumored new 4" form factor would require even higher levels), allows for slight shipments growth, and provides upside to current quarter (F2Q16) recently lowered sell-side estimates in particular.

I expect management to act opportunistically on share buybacks during the current quarter, likely depleting the remaining ~$30b already authorized in the program before the end of the FY and requiring an expansion to be announced in April. However, beyond FY16 I'm not modeling more than what's needed to offset employee grants (mostly due to concerns/ignorance about comfortable long-term debt levels and foreign tax/repatriation political uncertainty), which also implies further potential upside to EPS beyond the current quarter's estimated strong guidance if a significant authorization is announced in April.

Detailed estimates:

3mo ending Dec-2015  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    76,760          3.24
Apple guide low       75,500   39.0   3.09*
Apple guide high      77,500   40.0   3.31*
Deagol estimates      78,464   40.4   3.39 (5.60b shares)