Apple (
Nasdaq: AAPL) shares may have been waffling about in recent weeks, but it's not a crime to dream bigger.
Piper Jaffray analyst Gene Munster reiterated his bullish call on the
company. He outlined several catalysts that will drive the stock toward
his price target of $910 -- and then out to $1,000 and beyond.
That magically round four-digit number seems far away these days. The
stock has meandered since hitting an all-time high last month. However,
it's not as if the market should be shocked if Apple finds its way up
to that meaty $1,000 milestone sooner rather than later.
Cheap is relativeLet's put things into proper
perspective. Apple at $1,000 translates into a market cap of nearly $950
billion, but keep in mind that the class act of Cupertino has $110.2
billion in cash and long-term investments on its balance sheet. In other
words, Apple at $1,000 with its top-heavy balance sheet calls for an
enterprise value closer to $850 billion.
Apple's balance sheet is an important component in valuing the
company. After all, on a market-cap basis, Apple is fetching 12 times
this fiscal year's projected profitability, and a little more than 10
times next year's forecast. Back out the company's net cash to weigh
Apple on the fairer enterprise value basis, and the multiples drop by
roughly 20%. Yes, Apple really is fetching just 10 times this year's
earnings and 8 times next fiscal year's target.
Now let's look at Apple with a share price of $1,000. Its P/E starts
looking more like P.U. at that point. Apple would be priced at 21 times
this fiscal year's earnings and less than 19 times next year's earnings.
That doesn't seem like much of a bargain, especially as analysts see
revenue and earnings growth slowing to 20% and 15% respectively in 2013.
Stack that up against
Baidu (
Nasdaq: BIDU)
. Analysts see China's dot-com darling growing revenue and earnings by
42% and 39% respectively next year, and it's only fetching 18 times
2013's earnings. Is Apple really worth a slightly higher multiple at
less than half the growth?
Well, when you back out the company's cash -- and it would be closer
to 13% of Apple's market cap at $1,000 -- the fiscal 2013 multiple on an
enterprise cap basis is closer to 16. Oh, and even with Apple's new
dividend and next year's buybacks, the company's cash hoard will
continue to grow with every passing quarter.
Target practiceAnother thing that makes Apple
cheaper than it seems on paper is that it's a pretty safe bet that the
tech darling is going to obliterate Wall Street's estimates.
With the exception of a rare miss two quarters ago, Apple has
consistently landed ahead of market profit expectations for years.
Outside of that Halley's Comet of a miss, Apple has landed ahead of
analyst bottom-line forecasts by 34%, 37% and 23% over the past year.
This is ridiculously encouraging -- and probably by more than you think.
It's not just that dozens of well-paid analysts are perpetually
underestimating Apple's reality. It's that they are way off the further
out they go.
See, we can't just look at the average percentage that Apple has
historically achieved in its beats. Let's look at the past year. Let's
add in the 5% miss during Apple's September quarter, even if it stemmed
largely from analysts underestimating the impact of the iPhone 4S being
released after the period came to a close. We're still talking about
Apple landing ahead of the prognosticators by an average of 22%.
The knee-jerk bullish reaction would be to just apply that markup to
the $53.95 a share that the market's banking on for the fiscal year that
begins in October. At $1,000, Apple would be trading at just 15 times
the $65.82 a share that landing 22% ahead of the target implies.
But it gets better.
A lot better.
You haven't seen anything yetApple beats are
based on what the pros were forecasting at the time. Analysts have a
silly ritual. They miss a quarter. They jack up their estimates. It
isn't enough. A quarter later, they jack them up again. Yes, this even
happened during last year's quarterly miss -- as analysts slapped their
foreheads and realized that Apple would be selling a ton of iPhones
during the new holiday quarter.
Let's flesh out the magnitude of this very important point. Just six
months ago, analysts were expecting a profit of $34.77 a share in fiscal
2012 and $38.96 a share in 2013. Today, those targets have increased by
35% to $46.94 a share this year, and 38% to $53.95 a share come next
year. In other words, even before we get to the actual beat, the
starting line is being moved up aggressively.
Here, history teaches us that the further out you go, the larger the gap between perception and eventual realization will be.
What I'm trying to tell you is that if you eye the fiscal 2015 target
of $80.59 a share -- argue that $1,000 would be a pretty cheap price
for Apple
then -- that you shouldn't be surprised when Wall Street's estimates are far higher than even
that as we get closer.
So don't be surprised if Apple hits $1,000 in a matter of months --
and not years. Time has been very kind to Apple. Reality has been even
kinder.
This article come from:http://www.fool.com/investing/general/2012/05/27/apple-could-be-at-1000-sooner-than-you-think.aspx
