Apple: How Next Year Became This Year in Just 90 Days!
One of the arguments I’ve made in my previous posts about Apple (NASDAQ: AAPL) is that the multiple the stock is awarded right now is far too low. The reason for this continues to be the fact that analysts (the “pros”) have been horrific at understanding Apple and its future year growth prospects. Actually, they have not been too great at current year estimates but it is the out years that are compressing a much deserved higher multiple for Apple stock.
Almost every week you can witness analysts ratchet up their earnings estimates for current quarters as well as next quarter. Once Apple reports its earnings and blows away the estimates (as they have so many years now) the analysts all rush to increase next quarter numbers along with current year and next year earnings.
The big issue is that the out year continues to be estimated at such a low and unrealistic growth rate that it has analysts always playing catch up as those dates get closer. Allow me to explain using actual facts.
Just 90 days ago analysts were estimating for Apple to earn $48.36/share for Fiscal ’13. Right now the consensus estimate for fiscal year ’12 is at $46.91. In the last 90 days the consensus for 2013 went from that $48.36/share up to just $54.11/share.
So one might find it incredible that what analysts were predicting just 90 days ago for fiscal 2013 earnings has made its way to within just $1.45 ($48.36-$46.91) of fiscal 2012 earnings! So you can see just how far off analysts have been if you just track them over a single quarter. If you do this over an entire year its actually pretty shameful and you might even start to wonder how these analysts keep their jobs! There isn’t any real accountability in the world of professional analysts and apparently not much skill either based on these numbers.
To add some color to how off they are on a quarterly basis Apple beat estimates in the trailing four quarters by 33.6%, -4.6%, 36.5% and 22.5%. Unit shipment estimates for phones and iPads have been so far off the mark one has to question why investors still even listen to these misguided analysts.
Will Apple Really Only Grow 15% Next Year?
Ok so now we sit at an estimate of $46.91 for ’12 and $54.11 for ’13 reflecting just about 15% growth. Does anybody in the real world believe Apple will go from its earnings growth of over 100% last quarter to just 15% for next year? In 2012 and 2013 Apple has iPhone 5 & is adding more carriers including a likely deal with China Mobile and its 600 million subs. It also has the rumored iTV, new iMac’s, new laptops, iTunes juggernaut, new iPad, possible iPad Mini and who knows what else.
I’m extremely confident we will see Apple’s numbers for ’12 and ’13 get a boost after this quarterly earnings report and as iPhone 5 launch nears. We’ll see more boosting after the holidays and again each quarter. This is the same game thats been going on for years now. I’m estimating fiscal ’12 earnings to land closer to $50/share and ’13 to come in between $70 and $85 (well above the streets $54 which I am positive will rise over the next six to twelve months). If history is any guide not only will the street be embarrassed once again by their current estimates but mine also may prove to be too low.
Sadly Apple May be Forever Doomed to a Low Multiple
However, until the out year estimates come up to reflect a stronger than 15% growth I think most investors will only award the estimated growth multiple to Apple. Investors by in large won’t think for themselves or cannot do the analysis so the best they can take is whatever analysts spoon feed. So it may be the case if analysts never get a clue that Apple will just track along with its earnings from here but keeping with that low steady multiple of 10 to 15.
We’ll have to wait to see if analysts ever wake up after three years of grossly missing estimates. Again if history is any guide I would not count on it. So it will likely remain the case that every 90 days if you look at 2012 and 2013 estimates that the 90 day past estimate for 2013 will become 2012 estimates and they push 2013 upward just another meager 15% off the 2012 fiscal year estimate. As we get closer to 2013 the same game will repeat for 2013 and 2014.
Apple probably could do something along the lines of a 50% payout ratio along with a substantial buyback should they wish to break the stock from its meager multiple prison. At a 50% payout ratio that would be $25/share dividend for 2012 and possibly up to $40 for 2013. The yield at today’s price would be 4.2% and 6.8% respectively. I am quite sure that would boost the stock dramatically and still allow apple to add over $20 billion each year to their already massive balance sheet. Would Apple ever do this? Probably not but we are likely to see aggressive dividend boosts each year going forward and thus Apple continues to remain extremely attractive at any price under $850.
My personal 12 month target is 15 times 2013 earnings of $75 which is $1125 plus add in cash of $150 on the balance sheet in one year and you get to $1275 per share. We’ll see where we are in a year and how I did next to the “pros.”