Apple, iOS Devices and the Precipice of Success

On August 11th, I published my updated AAPL 12-month price target of $950 per share. Since that date, AAPL has moved from $620.73 to $700.09 per share. On Friday the shares set an all-time intraday high of $705.07 as the rollout of the iPhone 5 began in the US and select markets around the globe. Apple's newest iPhone handset is an early and unqualified success. 

I've mentioned several times in prior articles I expect the iPhone 5 to sell on a scale not seen before even by iPhone standards. Apple's early September announcement of a September 12th iPhone event essentially froze the domestic smartphone market while competitors scrambled to ship product to carriers before the iPhone 5's release on September 21st. Through at least the holiday quarter, there isn't a competing handset on the market that will generate anywhere near the iPhone 5's global appeal. 

In addition to the release of the iPhone 5, the iPhone 4 is now available on AT&T, Sprint and Verizon at a post-subsidy price of $0. This is the first time all three major domestic carriers have an iPhone available at that pre-tax price. The iPhone 4 at its new price will deliver a boost to unit sales over the next four fiscal quarters. 

Just prior to the iPhone 5's retail availability, Apple released iOS 6, the company's latest iteration of its operating system for the iPhone, iPad and iPod touch. No matter the early complaints about Apple's first major effort at mapping services, iOS 6 downloads and installations can be counted by the tens of millions. With all of the attention lavished on the iPhone 5, it's the iPhone and iPad combined that is driving the company's share price and market cap significantly higher.

iOS Devices As A Global Franchise

At my Posts At Eventide web presence I provide graphs and table data illustrating and detailing unit sales by quarter for each of Apple's major product lines. Today I am publishing a chart-based overview of iPhone and iPad sales to illustrate Apple's high rates of revenue and earnings growth depend on more than the iPhone alone. iOS devices have become a global franchise. Because Apple does not break out the unit sales of the iOS-based iPod touch, I am including only the iPhone and iPad product lines in today's analysis. 

The graph below illustrates the growth in iPhone and iPad sales over an eleven-quarter period beginning with the first quarter of FY2010 (fourth calendar quarter of 2009):

From a low of 8.737 million iPhone units sold in FQ1 2010 prior to the original iPad's release, to a high of 52.478 million iPhone and iPad units sold two years later in FQ1 2012, in seven of the eleven quarters covered, year-over-year unit sales growth reached or exceeded 100%. The accompanying table data is available at Posts At Eventide through the link posted above.

Apple Price Target: $950 Per Share

Today I am updating my 12-month Apple price target to $950 per share. This price target represents an expected share price appreciation of 52.8% from Apple's closing price of $621.70 on August 10th, 2012. I expect share price appreciation, on average, to trail behind the rate of earnings per share growth over the next 12 months as Apple's massive market cap influences the share price performance and as the company's price-earnings multiple continues to contract.

Over the next twelve months I anticipate reported revenue growth of roughly 50%, corresponding earnings per share growth of about 60% and the aforementioned 52.8% rise in the share price value. I anticipate 12 months from today a price-earnings multiple of 14 times trailing 12-month earnings, suggesting a slight compression in the multiple from today's valuation of 14.61 times trailing 12-month earnings of $42.55 per share. For the four fiscal quarters ending June 29, 2013, I expect trailing 12-month earnings of about $68 per share. 

Apple's P/E Multiple and Cash Per Share

The graph below illustrates Apple's rising cash per share and falling price-earnings multiple over a 10-fiscal quarter period. The dates selected for all of the graphs in today's article are the first trading day of the month following the release of the company's quarterly results. The dates were selected to provide a uniform reference and to eliminate the impact of rising earnings multiples immediately preceding the release of quarterly results. 

No matter the rising cash per share, Apple's price-earnings multiple has been on a steady and indisputable decline over this 10-quarter period. I expect this trend to continue over the next 12 months. 

Apple will continue to trade at a modest multiple to earnings relative to the company's rates of revenue and earnings growth. All of the wishful thinking in the world and spirited comparisons of Apple's valuation to other large enterprises with more lofty earnings multiples will not change the outcome. 

As of Friday's closing price, Apple's market cap stands at nearly $583 billion. I expect over the next twelve months for the market cap to reach $900 billion. Already Apple's market cap is greater than the combined market caps of IBM, Microsoft, HPQ and Dell with about $40 billion in market cap to spare. Apple is among the most widely held equities on the planet and the company's massive market cap will influence the share price valuation no matter the modest price-earnings multiple relative to current rates of growth.