Monday, April 25, 2022

Fiscal 2Q 2022 Final Estimates


As of today's current price of $161.57, AAPL trades at a 23.0x multiple on my NTM EPS estimate (22.4x when excluding NTM net cash and dividends).

The main question for investors is to what extent do the various current global issues (war, pandemic, new lockdowns, supply chain issues, rising cost of capital, inflation, recession, consumers subscription fatigue, regulation, labor activism... did I miss any?) translate into a longer-term headwind on growth beyond the current year or so. It's anyone's guess, so I'll just share my impressions without much justification (you should research those issues and derive your own conclusions). I do not see a long-term effect on demand, but I do believe management must be asking themselves a big, structural question around manufacturing diversification involving a relatively modest but potentially longer-term impact on current cost structures.

This question is far from exclusive to Apple, impacting the whole electronics industry. The good thing is Apple uniquely has a hefty gross margin cushion from a rising Services mix which allows it to execute almost any product manufacturing transition they may decide to take on with minimal impact on overall profitability. That doesn't mean it would be an easy decision to make, nor easy to execute. It's possible they've already set sail on this course. In any case, don't expect any visibly drastic changes in financial performance, nor dramatic measures or decisions announced. It's a long journey, and the destination isn't necessarily 180 degrees from the current situation. So I've modeled around 1% headwind on the long-term (beyond the next 3-5y) growth projection now at high single-digits, and a bit larger short-term impact over the next quarter or two. I'll leave it at that.

This is the time Apple always updates their Capital Return Program. A brief review of what it's done so far: $484 billion spent to retire 11.4 billion shares at an average cost of $42.59 per share, so almost quadrupled that investment. I expect at least another $25b spent during last quarter, leaving about $15b authorized for buybacks. So, given current $80b in net cash and projected near $110b in FCF over NTM, I think the authorization should be extended by over $120b more until next year, and the quarterly dividend raised by 13.6% to 25 cents per share from the current 22 cents. However, I wouldn't be surprised if management feels no need to be as aggressive (so as not to tip their hand so much) and instead decide on $100b extra for buybacks and 24 cents for the dividend (+9%).

As I promised last time, I'm bumping the long-term valuation multiple to 24x, and plan to take it to 25x for the December quarter preview at the earliest, depending on financial results through the rest of the Fiscal Year, and what's announced in the Summer and Fall events.


Detailed estimates:


3mo ending Mar22  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   94.0     -  1.43
My estimates       96.8  43.5  1.51 (16.42b shares)


3mo ending Jun22  Rev$B   GM%  $EPS
----------------  -----  ----  ----
Analysts consens   86.7     -  1.25
Apple gde lo (e)   84.0  42.5  1.20*
Apple gde hi (e)   89.0  43.5  1.35*
My estimates       88.4  43.4  1.35 (16.29b shares)

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


12m ending Sep22  Rev$B  $EPS
----------------  -----  ----
Analysts consens  396.1  6.17
My estimates      403.3  6.46


Valuation
Timeframe  NTMfrom  $EPS  Y/Y  Mult  Val   $*   Div  Tot
---------  -------  ----  ---  ----  ---  ---  ----  ---
Trail Val  Apr2021  6.14  38%  19.9  122  4.5  0.88  128
Frwrd Val  Apr2022  7.01  14%  22.6  158  3.5  1.00  163
1y Target  Apr2023  7.58   8%  23.6  179  2.2  1.20  182
2y Value!  Apr2024  8.29   9%  23.9  198  1.2  1.56  201

*Cash per share balance net of debt and commercial paper

(click to enlarge)
F2Q22 Statements of Operations Revenues F2Q22e F2Q21 Y/Y% -------- ------- ------- ----- iPhone 50,480 47,938 5.3 Mac 9,523 9,102 4.6 iPad 7,619 7,807 -2.4 W/H/A 9,244 7,836 18.0 -------- ------- ------- ----- Products 76,866 72,683 5.8 Services 19,937 16,901 18.0 -------- ------- ------- ----- Tot Revs 96,803 89,584 8.1 Gross Margin Breakdown -------- ------- ------- ----- Products 27,705 26,236 5.6 Services 14,450 11,843 22.0 -------- ------- ------- ----- Tot GM 42,155 38,079 10.7 -------- ------- ------- ----- Prod GM% 36.0% 36.1% -0.1 Svcs GM% 72.5% 70.1% 2.4 -------- ------- ------- ----- Tot GM% 43.5% 42.5% 1.0 Op Expns 12,587 10,576 19.0 -------- ------- ------- ----- OpIncome 29,569 27,503 7.5 Op Mrgn% 30.5% 30.7% -0.2 OIE -300 508 - -------- ------- ------- ----- Pre-Tax 29,269 28,011 4.5 Tax Rate 15.0% 15.6% -0.6 Tax Prov 4,390 4,381 0.2 -------- ------- ------- ----- Net Incm 24,878 23,630 5.3 Net Mrg% 25.7% 26.4% -0.7 Dil Shrs 16,424 16,929 -3.0 -------- ------- ------- ----- EPS $1.51 $1.40 8.5 Amounts in millions except EPS in dollars and ratios in %


3 comments:

Anonymous said...

Congrats! Congrats!

Anonymous said...

https://www.ped30.com/2022/04/28/apple-best-worst-analysts-q22022/

!

Fred Stein said...

Thanks,

I finally got some time to catch up. I like your assessment and approach. AAPL may be one of the safest investments in these uncertain times. Now, May 16. 2022, trading below $150, buybacks matter even more for downside protection and upside potential.

In a grim downside scenario, AAPL will suffer less than nearly any other asset, including cash.