[This was originally posted on 9/10. Please see 10/19 update details below. As of today's (10/19) market close of $219.31, AAPL is trading at a 15.0x multiple on my next-twelve-months EPS estimate (13.9x when excluding next-12-months net cash and dividend).]
Posting a month early and before Wednesday's event, as promised, in order to test my assumptions and intuition into this cycle, as I did last year as well with satisfying results.
The most uncertain item for me this time is iPhone pricing. I'm modeling a modest reduction from last year prices. Hope Apple can achieve this, as it would allow for a more sustainable boost to unit growth over mid single digits and easily beating the record 231.5m units sold in 2015.
The other sources of uncertainty are the Mac and iPad product lines. I'm assuming a significant update (finally) to both lines, announced and available for purchase this week. My Mac projections may be optimistic but the effect on total revenue and earnings of any mistake on my part will be limited.
I expect a strong Apple Watch Series 4 update, helping with continued very strong Other Products revenue growth.
Finally, I've slightly pared back my buyback intensity estimates, and accelerated the gradual valuation expansion mentioned last quarter from 0.1 to 0.25 quarterly increases in the EPS multiple, which now goes to 15x by 2022. Of course, this more realistic valuation reduces the number of shares Apple will be able to retire, resulting in a moderation of FY19 EPS growth from 30% to 23%. However, this is still well above Wall Street analysts, who continue to underestimate the effect of buybacks given their 15% EPS growth estimates when compared to their 5% revenue growth for next year (I'm at 6% revenue growth).
Detailed estimates:
3mo ending Sep18 Rev$B GM% $EPS ---------------- ----- ---- ---- Analysts consens 61.2 - 2.76 Apple guide low 60.0 38.0 2.67* Apple guide high 62.0 38.5 2.84* My estimates 62.0 38.4 2.83 (4.83b shares) 3mo ending Dec18 Rev$B GM% $EPS ---------------- ----- ---- ---- Analysts consens 91.8 - 4.84 Apple gde lo (e) 91.0 38.5 4.82* Apple gde hi (e) 94.0 39.0 5.09* My estimates 93.6 38.8 5.05 (4.72b shares) *EPS guidance ranges derived from other figures provided by Apple and diluted shares outstanding estimated by me 12m ending Sep19 Rev$B $EPS ---------------- ----- ----- Analysts consens 277.2 13.57 My estimates 281.3 14.45 Valuation Timeframe NTMfrom $EPS Y/Y x Val $* Div Tot --------- ------- ----- --- ---- --- -- ---- --- Trail Val Oct2017 11.79 28% 10.5 124 24 2.72 150 Fair Val Oct2018 14.45 23% 11.5 166 13 3.08 183 1y Target Oct2019 16.31 13% 12.5 204 6 3.50 214 *Cash per share balance net of long-term debt
F4Q18 Revenue breakdown: iPhone 36,020 (49.0 × $735) iPad 4,567 (10.8 × $423) Mac 7,400 (5.35 × $1,383) Services 9,922 Other 4,071 (4.85 × $390 = 1,890 Watch) Income statement: Revenue 61,980 COGS (38,207) GM 23,773 38.4% OpEx (8,013) OpInc 15,760 25.4% OIE 332 Pre-tax 16,092 Tax (2,414) 15.0% NetInc 13,678 22.1% Shares 4,825 EPS $2.83 (amounts in millions except $ASP, $EPS, and ratios%)
[10/19 UPDATE:
By followers' request I'm posting my revised estimates as shown below given that some of my assumptions were wrong, precisely those I commented that I was most uncertain: iPhone pricing and Mac/iPad updates. Essentially, higher Watch sales and iPhone ASPs are offset by slower iPhone unit growth, with some modest longer term effects on installed base-related revenue growth. Mac and iPad pent up demand gets pushed to Q1, postponing the return to mid-low single-digit growth. For last quarter (F4Q18), revenue is $0.1b lower and EPS comes out 0.06 cents higher (but rounds off to one cent higher). As for the current quarter (F1Q19), revenue is $1b higher and EPS 8 cents higher. For FY19 rev/EPS got a boost of $3.6b/$0.16 (1.3%/1.1%) but remain unchanged for FY20 and got cut about 2% longer-term.
F4Q18 Estimate Oct(e) Sep(e) Change %Chng -------- ------ ------ ------ ----- Units (millions) --------------------------------------- iPhone 48.00 49.00 -1.00 -2.0% iPad 10.00 10.80 -0.80 -7.4% Mac 5.00 5.35 -0.35 -6.5% Watch 5.00 4.85 0.15 3.1% ASPs ($) --------------------------------------- iPhone 753 735 18 2.4% iPad 422 423 -1 -0.2% Mac 1,436 1,383 53 3.8% Watch 394 390 4 1.1% Revenue breakdown ($Billions) --------------------------------------- iPhone 36.1 36.0 0.12 0.3% iPad 4.2 4.6 -0.35 -7.6% Mac 7.2 7.4 -0.22 -3.0% Watch 2.0 1.9 0.08 4.2% Services 10.2 9.9 0.29 2.9% Other* 4.1 4.1 0.06 1.4% * includes Watch --------------------------------------- Revenue 61.88 61.98 -0.10 -0.2% EPS ($) 2.84 2.83 0.00 0.0% F1Q19 guidance midpoint --------------------------------------- Rev ($B) 93.50 92.50 1.00 1.1% EPS ($) 5.03 4.95 0.08 1.6% F1Q19 estimates --------------------------------------- Rev ($B) 94.67 93.64 1.03 1.1% EPS ($) 5.13 5.05 0.08 1.6%
/UPDATE]
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3 comments:
Any thoughts on their guidance? The recent share price drop seems to be concerns re/ China tariffs effect on guidance? Personally, I think this may be overblown concern considering Apple could always offer cheaper models, manufacture in Mexico, etc. to duck under U.S. tariffs. China probably would not retaliate on Apple products either or risk losing their Apple plants that they have already?
Any estimate for 1Q 2019 given the latest iPhone soft demand symptoms? (supply chain cut back, boost trade-in, free iPhone on Ellen Show, etc.)...
Apologies for taking so long to publish these 2 comments. For some reason Blogger stopped notifying me of new comments requiring moderation.
My estimate for Q1 guidance is in the post, originally a pretty good estimate, but my October revision made it a bit high. I’ve slightly revised my Q1 estimates based on this guidance from Apple and not from supply chain rumors or soft demand speculation based on marketing efforts. I’ll publish my Q1 full estimates (sans units) around mid-January.
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