Tuesday, April 6, 2010

AAPL April Expectation: $258 Per Share

Apple (Ticker Symbol: AAPL) closed on Tuesday at $239.54 per share while setting a new all-time high of $240.24 in intra-day activity. No matter the number of Apple iPads sold in the first few days following the product's release last Saturday, the direction AAPL will follow over the next few weeks has more to do with the anticipated March quarter results to be released on April 20th than it has to do with sales of the company's latest hardware device. While a successful launch of the iPad will no doubt benefit the share price, an impressive March quarter will positively impact the share price even more.
At today's closing price Apple is trading at about 23.33 times trailing 12-month earnings per share of $10.27. I expect earnings per share of $2.75 or more for the March quarter. Using $2.75 per share for this example, Apple's trailing 12-month earnings would rise to $11.20 per share. Maintaining a price to earnings multiple of about 23, based on Match quarter results the share price should reach $258 or more per share by the end of April 2010. This suggests a further 7.5% rise in the share price from today's close by the end of this month. 
On Thursday Apple is expected to announce iPhone 4.0 software for its iPhone OS-equipped devices. While news of the OS update might move the share price higher, this news might have a more subtle effect of helping the shares maintain recent gains ahead of the March quarter earnings release. 


  1. That sounds like circular reasoning re: $258. It had a P/E around 20 following last earnings. While it certainly deserved something higher, that's what it got. In the end, PE is fairly arbitrary. The present P/E already anticipates earnings above consensus.

  2. Actually, the p/e reflects about half of the December quarter's earnings growth rate. I don't see the p/e multiple as arbitrary. I think there's a practical limit to what the market will price the stock and I see a p/e multiple of 25 as the upper limit of the market's long-term valuation. I'd be cautious acquiring the stock above a multiple of 25 times trailing 12-month earnings.

    I do expect the share price to move steadily higher over the next year with earnings growth propelling the share price steadily higher.

  3. It's arbitrary in that often it's a backward calculation. In many cases p/e simply is a rationalization/check on the pps compared to earnings. More art than science. 20 to 25 x ttm certainly a reasonable range, but other events clearly influence number within that range (for example, $220-$275 at $11 ttm). All I was questioning was using today's price, which already anticipates a higher whisper number in Q2 earnings, to come up with a p/e, and then to use that p/e to say where aapl will be once those earnings announced.

  4. Today's trading price is influenced by expectations of a strong FQ2 report from Apple. In fact, expect the earnings report to reflect the strong FQ2 in the company's history. My expectations include a doubling or near doubling of iPhone unit sales, a 35% or greater increase in Mac unit shipments and a relatively strong showing in the iPod line with flat or near-flat unit sales in comparison to the prior year period.

    Apple is currently trading at a p/e of roughly half the 1st fiscal quarter's earnings growth rate. I expect the shares to continue trading in the area of 50% of the rate of earnings growth through the month of April.

    There are several factors that are challenging to metric at this time: Broad consumer adoption of the Apple iPad, the emerging revenue streams from services such as ads that were mentioned in the special event today and increasing competition in the smartphone market from Android handsets.

    Please keep in mind I maintain a $384 12-month price target on the shares.