At Friday's closing price of $263.41 AAPL is trading at a price-earnings multiple of just under 20 times trailing 12-month earnings. Considering the company's huge cash position, 50% revenue growth this fiscal year and an anticipated 65% growth in earnings per share, Friday's closing price represents a deep discount to the company's current rates of growth.
Last month I detailed the basis of my forecast for AAPL to reach $400 per share by early May 2011. I've also stated reaching this price will not require a significant expansion of the nominal price-earnings multiple and continuing relative compression (the difference between the price-earnings multiple and continuing rates of growth) may continue. In other words, the discount between the current rates of growth and the valuation at which the share trade may continue to widen even as the share price appreciates.
Fiscal Year 2011 Analyst Estimates
One of the factors impacting the share price is the lowly analyst estimates for the company's fiscal year 2011 performance. Apple's new fiscal year begins at the end of this month. Currently the analyst consensus estimate for FY 2011 revenue is $78.70 billion in revenue and the consensus estimate for earnings per share is $17.52. In late July I posted early FY 2011 estimates of $100 billion in revenue and earnings per share of over $23. The analyst consensus estimates for FY 2011 revenue and earnings will rise considerably following the September quarter's results.
The consensus estimates of analysts for the September quarter are revenue of $18.50 billion and earnings share of $3.97. Apple will exceed the current consensus revenue estimate by at least 12% and the earnings per share estimate by 15% or more. For fiscal year 2011 the gap between the analyst consensus estimates and performance based on current rates of revenue and earnings growth continues to widen.
The analyst consensus of $78.70 billion in FY 2011 revenue suggests a revenue growth rate of roughly 20% from the current fiscal year's performance. In fiscal year 2010 Apple will realize revenue growth of 50% over the prior fiscal year and earnings per share growth of over 65%. The consensus earnings earnings per share estimate of $17.52 per share suggests growth of less than 17% over the current fiscal year. These estimates must undergo significant revisions because
Not only are the consensus estimates for fiscal year 2011 revenue and earnings growth well below the rates of fiscal year 2010 growth, for the first two quarters of fiscal year 2011 there are no iPad revenue or earnings contributions in the prior-year comparisons.
AAPL Near-Term Price Appreciation
For fiscal year 2010 Apple will report earnings per share of $15 or more. Applying today's p/e multiple of roughly 20 times trailing 12-month earnings to the fiscal year results yields a share price of roughly $300. Estimating a continuing 65% rate of earnings per share growth through the first two quarters of fiscal year 2011 that do not have iPad contributions to earnings in the prior-year comparisons yields a trailing 12-month earnings estimate of about $19.60 per share. Applying today's p/e multiple of roughly 20 times trailing 12-month earnings yields a share price of about $392 by late April 2011, following the release of March quarter results.
I reiterate my share price forecast of $400 by early May 2011. I expect the fiscal year 2011 consensus estimates for revenue and earnings to rise significantly following the release of the September quarter results in late October and analyst share price forecasts to rise accordingly.
We are at the threshold of a major move higher in AAPL without an expansion of the nominal price-earnings multiple due to continued strong revenue and earnings growth for Apple. The current median price target of analysts for AAPL is $343 per share. The median target will rise significantly over the next several weeks as analysts revise their estimates following release of fiscal fourth quarter and fiscal year 2010 results.
The next two months may represent an opportunity to capture as much as a 15% move higher in AAPL, creating an excellent opportunity for investors. The move higher does not involve an expansion of Apple's price-earnings multiple from the current 20 times trailing 12-month earnings.
Robert Paul Leitao