Fiscal 2Q 2012 Final Estimates

At today's closing price of $628.44, AAPL is trading at a 10.4 multiple on my forward EPS (8.5x ex-cash).

The valuation metrics provided below are intended to track the market price of the shares at the given timeframes, and thus exclude any dividend paid up to that point in time because the dividend is subtracted from the cash balance, as it should. However, because my underlying theory is that shares should be (roughly) valued on a forward-one-year basis, to compensate for this one needs to add back into the value the next 12-months worth of dividends.

For example, the current fair value is based on 10 times the EPS estimate of $60.39 for the next 12 months which gives $604, plus the estimated cash balance at the end of the next 12 months of $165/sh (which already excludes any dividends paid over that period), and adding back the $8 worth of dividends paid over the next 12 months which a buyer today would in fact be entitled to, resulting in a $777 fair value. The one-year target is computed similarly given the annual EPS, dividends and cash balance for the 12 months ending 2 years from now.

I consider the "trailing" metric relevant for the past 3 to next 3 months, the "fair value" metric relevant for roughly the next 3 to 9 months, and the "1yr target" metric relevant for roughly the next 12-18 months. Of course this is all my own subjective/empirical sense.

Fiscal 1Q 2012 Final Estimates

Apple shares today are flirting around the record all-time intraday high price of $426.70, yet that still represents a record low valuation of 8.6 times my forward-looking EPS estimate (6.6x ex-cash).

A cash balance of $409 per share is estimated by June 2016, and $432 by the end of that Fiscal Year in September 2016, still surpassing the current market price within 5 years from now (this assumes no dividends so if you're reading this in 2016 remember to add back any of those plus interest).

As for the most recent past, and immediate future:

3mo ending Dec-2011   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         37,000     9.30
Analysts consensus     38,280     9.87
Deagol estimates       41,895    11.58

Fiscal 4Q 2011 Final Estimates

AAPL now trading at [$381.32] 8.6 times my forward-looking EPS estimate (6.6x ex-cash). Here are some comparisons with previous periods:

Jul 18, 2011: [at $374.65] 10.8 times my forward-looking EPS estimate (8.6x after excluding cash)
Mar 21, 2011: [at $330.67] 10.5 times my fwd EPS estimate (8.3x ex-cash)
Dec 23, 2010: [at $323.60] 12.9 times my fwd EPS estimate (10.5x after excluding cash)
Oct 02, 2010: [at $282.52] 12.7 times my FY2011 EPS (10.5x after excluding cash)
Jun 30, 2010: [at $251.53] 12.1 times my FY2011 EPS (9.8x after excluding cash)

An alternative long-term valuation metric I introduced in my "Get AAPL for free" post from July, which had Apple's cash balance matching the then current share price within 4.5 to 5 years is maintained, with Apple's cash estimated at $381.16 per share for the quarter ending in June 2016. As I pointed out then, it's a very conservative scenario that does not assume any new product category and now involves even more cautiousness with EPS growth slowing down to 10% by then (was 15%). Just trying to somehow align that base case with the current valuation multiple and its implied market sentiment.

The rest of the details:

3mo ending Sep-2011   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         25,000     5.50
Analysts consensus     29,110     7.15
Deagol estimates       32,097     8.75

Apple at record high yet cheap as ever

Ok maybe not as cheap as in 2003...

Still, despite the 20%+, 64+ point run in less than a month to a record all-time intraday high today of $374.65, those buying AAPL at that price are still getting it at a near-record low (recent years) valuation multiple of only 10.8 times my forward-looking EPS estimate (8.6x after excluding cash).

Fiscal 3Q 2011 Final Estimates

3mo ending Jun-2011   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         23,000     5.03
Analysts consensus     24,920     5.80
Deagol estimates       26,070     6.62

Get AAPL for free - yet another opinionated valuation analysis

These days there's been endless discussion about AAPL valuation, some as usual focused on Apple and its perceived risks, some scolding everyone for even talking about valuation as it's "evidently" irrelevant, and more recently some more focused on market mechanics and manipulation. There's evidence and theory and some data to back almost any combination of reasons, be that pro or con any specific issue. Precisely because of this, most points of view end up being opinion based. I won't even point you to any article as there's been too many and I don't want to bias your research by picking my favorites (check on the list of links at the right for some of them). Or just Google "AAPL valuation" and filter by "last month" with the search tools on Google's left panel.

So here, to add my take to the "AAPL valuation is nuts" opinionated pool, I've chosen to do it without addressing any of the common issues. Yup, you read that right. I won't talk about management uncertainty or competitive forces or the broader economy or sentiment or market manipulation. There's plenty on all of that elsewhere, and usually (if you're good at parsing trolls) insightful and exhaustive discussion through those articles' comment systems.

Pro analysts' "lazy eye" - charted

Sorry for taking so long to post about Apple's fiscal 2Q 2011 results. By now everyone surely has all their answers, so I'll keep it short (and you can get the gritty details in the tables below). Compared to my estimates, a huge iPad miss ($1.6b) partly offset by iPhone upside ($1.1b), among lesser effects, resulted in almost $600m revenue miss. All of it was made up through lower costs hitting operating income within 0.2%, and nailing pre-tax income. Slightly lower tax rate and share dilution than expected resulted in EPS 8 cents (1.2%) higher than expected. All margin ratios were slightly better than expected. Revenue guidance roughly inline but EPS guidance significantly higher than expected, which suggests continued high margins. Here's all the details:

Fiscal 2Q 2011 Final Estimates

I was planning on posting my estimates next week once the quarter had ended. However, because the last few times I posted estimates AAPL was priced closer to the next-3-months low than its next-3-months high price, and seeing as right now we're barely above the most recent low, I didn't want to let this opportunity go by.

In the last 3 estimate posts, I included a P/E blurb highlighting how extremely undervalued was the then current AAPL price. Here they are, for reference:

Jun30: Apple now trading at [$251.53] 12.1 times my FY2011 EPS (9.8x after excluding cash)
Oct02: Apple now trading at [$282.52] 12.7 times my FY2011 EPS (10.5x after excluding cash)
Dec23: Apple now trading at [$323.60] 12.9 times my fwd EPS estimate (10.5x after excluding cash)

It seemed to me that those 12-13x multiples (10x ex-cash) on my estimates were acting as a rock-bottom level for AAPL. No more. As of Friday's close, AAPL is now trading at [$330.67] 10.5 times my fwd EPS estimate (8.3x ex-cash). As I type this it's up to $336 in pre-market, which is merely inline with the Q's move.

Smooth Operator

No need to ask.
He's a smooth operator

"That's a part of the magic at Apple, and I don't want anybody copying it."

"Excellence has become a habit."

"If this is cannibalization it feels pretty good."

I'm happy and relieved to see Apple finally beating my estimates after I had been slightly overshooting for the last couple of quarters.

Thanks to Steve, Tim and the rest of the Team, all Apple employees, for kicking major ass. To paraphrase a commenter in another post: me and my family and our accounts thank you, Apple.

Anyway, on to the details. Solid quarter with upside across the board, except Macs and iTunes coming a bit below my estimates. The $670m revenue upside and 50 bps GM beat was tempered by slightly higher than expected operating expenses and tax rate, resulting in a 21 cent "surprise" (3.2%).

But the real shock of the report is not that much on the December quarter but in Q2 ending in March, which looks to be another record in the making (ironically Q2 is usually the weakest of the year). Not only did they guide higher than the admittedly lowball WS analysts expectations, PO also shattered my own "sandbagged" estimate, and almost guided up into my "real" estimate of $5.07. That would have been, and is unprecedented.

All the details:

Fiscal 1Q 2011 Final Estimates

Apple now trading at 12.9 times my fwd EPS estimate (10.5x after excluding cash)

I might adjust things a bit if there's any announcement in January.

3mo ending Dec-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         23,000     4.80
Analysts consensus     24,110     5.29
Deagol estimates       26,071     6.23

Apple Financial Floor Plan

A slightly different take on asymco's idea of Describing Apple’s growth, cost structure, product-level and overall profitability in a self-explanatory chart (click to enlarge).

Fiscal 4Q '10 actual results vs. estimates

I'll have to fine tune the iPhone and iPad projections. Everything else came in a bit soft, with iPod and iTunes the weakest. On the income statement, I started with a relatively small $219m (1.1%) revenue shortfall, but made it worse at every step (most impact was from guessing GM a bit high) and it widened to $403m (7.4%) shortfall in pretax income. Fortunately this was almost all offset by a much lower tax rate than estimated, resulting in actual EPS only 9 cents short of estimated, or within 2%. Guidance for the current quarter was impressive.

Here's all the details. I've included the combined iPad+iPhone figures to highlight how those two big errors balanced out.

Deagol vs. Market... vs. Apple

Back in April I posted a couple of charts showing how my "fair value" and "target" forecasts compared to AAPL's price history over the last few years. Several readers have asked for an update, and I said I'd do one when AAPL made a credible move to catch up with its fundamentals, which is the basis for my FV and target forecasts. Seeing as AAPL has run about 80 points in 7 weeks, I was also curious to visualize how far towards a fair valuation has this recent attempt taken it.

Fiscal 4Q 2010 Final Estimates

Apple now trading at 12.7 times my FY2011 EPS (10.5x after excluding cash)

3mo ending Sep-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         18,000     3.44
Analysts consensus     18,610     3.99
Deagol estimates       20,562     4.73

iPad to exceed Mac revenue in 2012

And no, it's not because I think it'll eat into Mac's growth (average about 25% growth in units, 20% in revenue for the next couple of years). But by Sep 2012 (ttm) iPad would grab the #2 spot as a revenue driver within Apple, behind the iPhone. If we annualize the current quarter's estimate it already exceeds annual iPod revenue, which was the #3 driver up to now (this even after taking into account the December seasonality which benefits the iPod).

Back in early April, before few had any clue how big the iPad would be, I had this very ambitious forecast for it, along with all other Apple product lines. I was way off in underestimating its contribution (as well as iPhone's). Here's an update to that chart:

Gross margin key for EPS estimate

Duh! Ok, maybe some didn't know this. Anyway, I've done some sensitivity analysis on my model by changing one variable at a time by 10%, and looking at the resulting percentage change in EPS.

First, I simply adjusted the variable by 10% and froze all the other variables, noted the EPS change, and moved on to adjust the next variable (resetting the previous one to how it was originally). Here's a couple of charts for that (click to enlarge):

Bloggers vs. Pros Earnings Smack-down

Later this afternoon is Apple's earnings day. This is when all of us analysts earn our salary (haha sarcasm). To me, it's very important to keep track of my accuracy compared to other analysts not because I need to earn a salary, but because I simply need to get my modeling relatively right for my investment objectives to work.

So as I'm sure you know, PED does this earnings smack-down thing, pitting professional analysts against bloggers. Think of WWE, but better (without the predetermined outcomes). Lol ok, it's not nearly as exciting or entertaining, but it's as close as it will ever get in the investment analyst world. It's been a couple of years now, and it's been really fun. Thanks PED.

The Street awaits Apple's Q3 earnings

Go there and see the awesome table PED's meticulously crafted. I thought I'd try to get the revenue and EPS columns in some kind of visual form. So I went and calculated standard scores on everyone for revenue and EPS and ranked them all on the combined score. Then try to chart it, highlighting and contrasting the pro/blogger dimension. I came up with this (click to enlarge):

I decided to highlight the 3 most bullish and bearish professional analysts, and one of each extreme for the bloggers, as well as the mean for each group. I also highlighted Munster (because his EPS is so out of whack and I wanted to show that) since his combined score represents the median analyst (that is, if his revenue and EPS estimates actually cohered with the mid point of those two extremes). Oh, and myself, uh, because this is my blog.

If you ask me, this looks ugly. Ha. I don't know if I could've enlightened the data in a different way, but to me it's not a nice visualization of it. I couldn't think of anything else and the report is almost here, so there you have it.

Here's the raw data for the chart:

Analyst (ranked from most                     ----- z-scores ----
bearish to most bullish)                        Rev    EPS   Comb
--------------------------------------------  -----  -----  -----
1  Ben Reitzes, Barclay's Capital             -1.31  -1.13  -1.22
2  Mathew Hoffman, Cowen & Co.                -1.13  -1.09  -1.11
3  Tavis McCourt, Morgan Keegan               -0.80  -1.28  -1.04
4  Keith Bachman, BMO Capital                 -1.31  -0.76  -1.04
5  Shaw Wu, Kauffman Bros.                    -1.31  -0.73  -1.02
6  Toni Sacconaghi, Bernstein Research        -0.93  -0.91  -0.92
7  Doug Reid, Stifel Nicholaus                -0.91  -0.80  -0.86
8  Kathryn Huberty, Morgan Stanley            -0.58  -1.06  -0.82
9  Ralph Schackart, William Blair             -0.64  -0.76  -0.70
10  Brian Marshall, Gleacher & Co.            -1.13  -0.21  -0.67
11  Mark Moskowitz, J.P. Morgan               -0.57  -0.69  -0.63
12  William Fearnley, Janney Capital          -0.47  -0.54  -0.51
12.3  Professionals                           -0.42  -0.47  -0.45
13  Ashok Kumar, Rodman & Renshaw             -0.04  -0.65  -0.35
14  Richard Gardner, Citigroup                -0.04  -0.36  -0.20
15  Rajesh Ghai, Think Equity                  0.29  -0.65  -0.18
16  Chris Whitmore, Deutsche Bank              0.07  -0.36  -0.15
17  Gene Munster, Piper Jaffray                0.87  -1.13  -0.13
18  Nehal Chokshi, Technology Insights         0.18  -0.43  -0.13
19  Mike Abramsky, RBC Capital                 0.14  -0.36  -0.11
20  Vijay Rakesh, Sterne Agee                 -0.80   0.63  -0.08
21  Turley Muller, Financial Alchemist         0.05   0.19   0.12
22  Scott Craig, Merrill Lynch                 0.00   0.45   0.22
23  Jeff Fidacaro, Susquehanna                -0.24   1.26   0.51
24  Dennis Hildebrand, Apple's Gold           -0.08   1.18   0.55
25  Yair Reiner, Oppenheimer                   1.12   0.08   0.60
26  Andy Zaky, Bullish Cross                   0.36   1.15   0.75
27  Alexis Cabot, Apple Finance Board          0.90   1.23   1.07
27.2  Bloggers                                 1.07   1.21   1.14
28  Daniel Tello, Deagol's AAPL Model          1.14   1.00   1.07
29  Horace Dediu, Asymco                       0.73   1.55   1.14
30  Jeff Fosberg, Apple Finance Board          1.67   1.63   1.65
31  Robert Paul Leitao, Apple Finance Board    2.38   1.51   1.95
32  Nicolae Mihalache, Trader's Neighborhood   2.37   2.07   2.22

Good luck to everyone!

Fiscal 3Q 2010 Final Estimates

Apple now trading at 12.1 times my FY2011 EPS (9.8x after excluding cash)

3mo ending Jun-2010    Rev($M)   EPS($)
-------------------    -------   ------
Apple guidance          13,200     2.34
Analysts consensus      14,604     3.05
Deagol estimates        15,750     3.57


3mo ending Sep-2010    Rev($M)   EPS($)
-------------------    -------   ------
Apple guide (est.)      16,450     3.27
Analysts consensus      16,453     3.69
Deagol estimates        18,271     4.46


12mo ending Sep-2011   Rev($M)   EPS($)
--------------------   -------   ------
Analysts consensus      71,225    16.16
Deagol estimates        83,993    20.48


Valuation (12mo beginning on)    EPS($)    25x    20x
-----------------------------    ------    ---    ---
Trailing           (Jul-2009)     13.34    334    267
Fair value         (Jul-2010)     19.05    476    381
1yr target         (Jul-2011)     24.23    606    485


Revenue breakdown:
Mac        4,125 ( 3,338 @ $1,236)
iPad       2,150 ( 3,258 @ $  660)
iPhone     5,456 ( 9,042 @ $  603)
iPod       1,655 (10,124 @ $  163)
iTunes     1,258
Software     641
Periph       465


Income statement:
Revenue   15,750
COGS       9,497
GM         6,253
OpEx       1,850
OpInc      4,403
OI&E          62
Pre-tax    4,465
Tax        1,161
NetInc     3,304
Shrs.        925
EPS         3.57


Ratios:
GM%        39.7%
OpInc%     28.0%
Tax%       26.0%
NetInc%    21.0%

Check out these fellow bloggers' estimates:

Andy Zaky: Fiscal Q3 2010 Earnings Forecast (AAPL)

Horace Dediu: Asymco estimates for Apple’s third fiscal quarter

Robert Leitao: AAPL June Quarter Estimates In Detail

Jeff Fosberg: AFB's user Mercel

Alexis Cabot: AFB's user awcabot

Turley Muller (by way of PED): How Turley Muller calls Apple

And PED's smack-down is on:

The Street awaits Apple's Q3 earnings

How many iPhones did Apple sell?

How many iPads did Apple sell in Q3?

How many iPods did Apple sell in Q3?

Let's talk about the Mac for a change

Apple randomizes web order numbers

Sometime around the middle of May I started receiving submissions of web order numbers that were out of sequence. After a major batch of contributions from June 15, I've concluded Apple has now successfully randomized these in such a way that I no longer can derive (nor estimate in any meaningful way) a count of web orders from any two or more numbers and date-time values, as I've done for 5+ years.

Here's a scatter plot of the contributions for June 15:


Here's a frequency histogram including a few more web order numbers from before and after those shown above:

And here's the raw data, in case anyone somehow mines some pattern out of it:

Timestamp(PDT)  Web number  Contributor
--------------  ----------  ------------------
05/09/10 06:11  W299136XXX  macnmaine
05/10/10 03:52  W2477497XX  michelc
05/10/10 05:48  W2293963XX  CdnPhoto
05/14/10 15:19  W2916900XX  Ghh008
05/16/10 17:40  W215139XXX  macnmaine
06/02/10 11:55  W2769957XX  centex
06/06/10 15:49  W292153XXX  macnmaine
06/14/10 18:58  W2856025XX  centex
06/15/10 09:30  W263697XXX  cotten999
06/15/10 12:51  W2462125XX  hltr
06/15/10 13:35  W2771715XX  The Scorpion Files
06/15/10 14:53  W2436969XX  braney
06/15/10 15:55  W2736754XX  DSO
06/15/10 16:22  W2670179XX  parkslope2006
06/15/10 16:32  W2755113XX  DSO
06/15/10 17:07  W216414XXX  nontekkie
06/15/10 17:12  W2488284XX  $ Bill Yall
06/15/10 18:00  W2831010XX  jamesd
06/15/10 19:19  W2111939XX  centex
06/15/10 19:22  W2659075XX  cranjo
06/15/10 19:29  W2705339XX  tradervic
06/15/10 19:30  W2562092XX  cranjo
06/15/10 19:31  W2357239XX  sensiblethoughts
06/15/10 20:00  W219790XXX  organicandnoworms
06/15/10 23:29  W2940290XX  fhatta
06/16/10 09:46  W2300058XX  Probe

This is unfortunate, but of course it won't prevent me from continuing to analyze Apple's business. I have to thank Apple for letting me get away with it for 5+ years, but most of all I'd like to thank all the fellow AAPL investors for their voluntary contributions to this effort. And Steve "Caligula" Evans for coming up with the idea in the first place and compiling those very early numbers.

But now it's time to fly solo, and hope I don't disappoint. Third quarter final estimates in a couple of weeks. They look great but I'm still tinkering with things, and we'll surely get some more info on iPhone 4 sales over the next couple of weeks. Stay tuned!

Deagol vs. Market

Click to enlarge. Not sure if it needs any more explanation. It's kind of complicated, yet simple. Ask in comments if you have any question.

Update: A reader requested earlier forecasts. Here's a sloppy zoom-in showing those (click to enlarge).

Fiscal 2Q 2010 Final Estimates

3mo ending Mar-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance         11,200     2.12
Analysts consensus     11,960     2.44
Deagol estimates       12,594     2.77


3mo ending Jun-2010   Rev($M)   EPS($)
-------------------   -------   ------
Apple guidance (e)     13.200     2.40
Analysts consensus     12,913     2.63
Deagol estimates       14,675     3.21


12mo ending Sep-2010   Rev($M)   EPS($)
--------------------   -------   ------
Analysts consensus      55,091    12.01
Deagol estimates        59,721    13.66


Valuation (12mo beginning on)    EPS(e)   PPS(25x)
-----------------------------    ------   --------
Trailing           (Apr-2009)     11.22        281
Fair value         (Apr-2010)     15.72        393
1yr target         (Apr-2011)     19.82        495

PED:
How many iPhones did Apple sell?
How many Macs did Apple sell?
How many iPods did Apple sell?
How big was Apple's second quarter?

Revenue breakdown:
Mac        3,893 ( 2.95M @ $1,320)
iPhone     4,764 ( 7.50M @ $  635)
iPod       1,681 (10.40M @ $  162)
Music      1,238
Software     608
Periph       412
--------  ------
Total     12,594


Income statement:
Revenue   12,594
COGS       7,367
GM         5,227
OpEx       1,631
OpInc      3,595
OI&E          35
Pre-tax    3,631
Tax        1,089
NetInc     2,541
Shrs.        918
EPS         2.77


Ratios:
GM%        41.5%
OpInc%     28.5%
Tax%       30.0%
NetInc%    20.2%