Thursday, January 25, 2018

Fiscal 1Q 2018 Final Estimates

As of yesterday's market close of $174.22, AAPL is trading at a 14.1x multiple on my next-twelve-months EPS estimate (11.7x when excluding next-12m net cash and div).

On tax reform effects, Apple seems to have provisioned past foreign taxes very presciently as the $38b it announced will pay (presumed over 5 years though regulations allow it over 8 years) is very much in line with the foreign tax deferred liability they would have as of December (was $36b as of September). On the going-forward effective rate, I'm modeling a gradual decline from 22% (current quarter) to about 20% in a year, but I can see it going down to 18% depending on many particularly complex details of the new tax treatment for foreign income.

As for what to do with all the freed-up cash, other than increased R&D and capital spending (mostly already in my model) I'm going with a dividend per share increase of 16% next April and about 20% per year for the following 3 years (raised it 10.5% last year) essentially doubling the current per share amount by 2021 and achieving a 2% yield on my stock price projection. In addition, I model a $110b increase ($35b base annual increase and $75b due to tax reform) to the share repurchase program to a total of $320b through March 2020 (was $210b through March 2019). Assuming my stock price forecast isn't too far off from reality, this would reduce the shares outstanding after the next 3 years to about 4.3b shares, and would limit the incremental total dividend cost to Apple to only about $5b over 3 years (ttm cost is $12.8b).

On iPhone cycle and all the other products business, seems my experiment last September of taking a shot at it well before it all went down was rather succesful, as my guesses were pretty good, particularly guidance. So no major changes to the fundamental business basis for the model other than another bump to ASPs. Be prepared to see many pundits dismissing all of 2018 positives as mere financial engineering, and an intensification of the already schizophrenic negativity for the next cycle.

Detailed estimates:

3mo ending Dec-2017  Rev($M)  GM(%)  EPS($)
-------------------  -------  -----  ------
Analysts consensus    86,750      -   3.80
Apple guide low       84,000   38.0   3.61*
Apple guide high      87,000   38.5   3.82*
My estimates          87,358   38.8   3.98 (5.14b shares)