With Jobs Gone, Apple (AAPL) Can Again Trade on Fundamentals
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Price: $295.60 +0.44%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.4%
Revenue Growth %: +15.8%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 0.4%
Revenue Growth %: +15.8%
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Shares of Apple Inc. (Nasdaq: AAPL) are now up 4 percent since announcing Steve Jobs will step down as CEO last Wednesday.
Onlookers may be astonished by the stock's relative strength in the face of an announcement that on the surface looks so negative for the long-term prospects of the company. However, taking a deeper look you will see this is exactly what should be happening.
There was always a sense Mr. Jobs' health condition was an overhang on the stock. How could investors ever feel perfectly comfortable owning the company with the CEO's health so fragile? What if Jobs died while in the CEO spot? Now that Jobs has resigned from the top spot, the overhang has been removed and the stock can again trade on fundamentals.
Investors can now value the company based purely on earnings power. Loving or hating new CEO Tim Cook is irrelevant at this point -- can he drive earnings is what investors should be asking.
When you look at Apple as a pure earnings play the stock looks very cheap.
With Apple's current fiscal year nearly over (currently in the fourth quarter of 2011), investors need to start looking at a multiple on next year's estimates. Shares are trading at a modest 12x next year's consensus of $32.16.
This is cheap enough, but if you consider that Apple has beaten the consensus by an average of 22 percent over the last four quarters, according to data at StreetInsider.com's EPS Insider, this would put the "real" FY12 EPS consensus number is closer to $39.24. Such earnings suggest Apple is trading at a multiple of less than 10x.
Giving Apple a market multiple of 13x on expected FY12 EPS, shares should be at $510... TODAY. This is not even counting the $82 per share in cash Apple has on the books.
Any way you slice it, Apple is cheap. With Jobs gone, investors can again focus on this fact.
DISCLOSURE: Author is long Apple shares.
Onlookers may be astonished by the stock's relative strength in the face of an announcement that on the surface looks so negative for the long-term prospects of the company. However, taking a deeper look you will see this is exactly what should be happening.
There was always a sense Mr. Jobs' health condition was an overhang on the stock. How could investors ever feel perfectly comfortable owning the company with the CEO's health so fragile? What if Jobs died while in the CEO spot? Now that Jobs has resigned from the top spot, the overhang has been removed and the stock can again trade on fundamentals.
Investors can now value the company based purely on earnings power. Loving or hating new CEO Tim Cook is irrelevant at this point -- can he drive earnings is what investors should be asking.
When you look at Apple as a pure earnings play the stock looks very cheap.
With Apple's current fiscal year nearly over (currently in the fourth quarter of 2011), investors need to start looking at a multiple on next year's estimates. Shares are trading at a modest 12x next year's consensus of $32.16.
This is cheap enough, but if you consider that Apple has beaten the consensus by an average of 22 percent over the last four quarters, according to data at StreetInsider.com's EPS Insider, this would put the "real" FY12 EPS consensus number is closer to $39.24. Such earnings suggest Apple is trading at a multiple of less than 10x.
Giving Apple a market multiple of 13x on expected FY12 EPS, shares should be at $510... TODAY. This is not even counting the $82 per share in cash Apple has on the books.
Any way you slice it, Apple is cheap. With Jobs gone, investors can again focus on this fact.
DISCLOSURE: Author is long Apple shares.
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