AAPL Target Price: $450 Per Share

Please see my updated AAPL price targets dated February 7, 2011. 


AAPL Target Price: $450 Per Share

At Friday's closing price of $292.32, AAPL has risen about $29 or 11% in two weeks. The good news is there's much more room for the share price to rise. On September 11th in a Posts At Eventide entry titled FY 2011 Analyst Estimates: Why AAPL Is Set To Pop, I noted the modest analyst estimates for FY 2011 that begins this weekend. Wall Street pros are continuing to be conservative in their price targets. Readers of this blog know I have a long-standing price target of $400 by early May. According to Philip Elmer-DeWiit at  Apple 2.0, perennial Apple bull Gene Munster has recently raised his price target to $390 per share and for good reasons.

In evaluating and forecasting Apple one must look beyond the individual product lines and look at the performance of the company as a whole. In fiscal year 2011 Apple may have a second consecutive year of 50% revenue growth and 60%+ growth in earnings per share.

To put Apple's growth in perspective, in fiscal year 2011 revenue from iPad device sales and iPad-related accessories and services may equal or exceed Apple's total reported revenue in fiscal year 2007. Overall, in fiscal year 2011 Apple may reach $100 billion in revenue, a four-fold increase in revenue in four fiscal years. The Apple iPad is obviously a significant factor in Apple's revenue growth. But consider the Apple iPad may represent 25% of the company's FY 2011 revenue take. 

Assembling all of the product and services pieces should yield price targets well above current Wall Street projections and well beyond today's trading range. Continuing analyst upgrades and price target revisions will fuel further gains in the share price no matter the run up in the share price over the past two weeks. 

Apple's two fastest growing product lines (the iPhone and the Apple iPad) are having a pronounced halo effect on Mac sales. Mac unit sales growth for fiscal year 2010 will meet or exceed 30%. Even with the release of the Apple iPad, Mac unit sales will continue to rise at an impressive pace in fiscal year 2011. The iPad is taking revenue share from PC sales in the sub-$1,000 market, a market Apple barely addresses with the $999 MacBook. 

At AAPL's closing price on Friday of $292.32, the shares are trading at a multiple of 22 times trailing 12-month earnings. I expect this multiple to remain fairly consistent over the next twelve months. I am raising my AAPL price target to $450 per share. I expect that share price to be reached no later than early November 2011.

The Apple iPad: A Transcendent Device

The Apple iPad Transcends The PC

In June, in a blog post I titled Bunkum and Balderdash: The iPad Is Not A PC,  I commented on a Forrester Research report that suggested the Apple iPad is a PC in tablet form. The Apple iPad is not a PC or a PC replacement. The Apple iPad is a device that transcends the PC and it's a product that will hasten the PC's demise. The Apple iPad is a revolutionary device that is sparking an evolutionary change in the way we access information and communicate with the world around us and with one another. 

The Apple iPad's Impact On Notebook PC Sales

On Friday Philip Elmer-DeWitt published an Apple 2.0 column citing data from the NPD Group that was included in a report from Morgan Stanley's Katy Huberty indicating domestic notebook retail PC sales have decelerated since the release of the Apple iPad. The deceleration in sales has been so dramatic, it's estimated in August notebook PC sales experienced negative domestic sales growth. 

There are several factors, including the iPad's early success, that might be contributing to the negative growth in notebooks sales at retail. Among these factors are a possible slowdown in sales or sales growth following the release of Windows 7 last fall, the popularity of Apple laptops on America's college campuses and a change in consumer preferences about personal digital devices. 

Absent data on Apple iPad sales, it's challenging at best to accurately determine the direct impact Apple's tablet-sized digital device is having on domestic retail sales of PC notebook computers. But for Windows PC OEMs the early success of the Apple iPad may force an acceleration of plans to release competing tablet products in an effort to recapture revenue migrating to Apple due to the iPad's popularity. Until now the iPad's domestic distribution has been limited. As iPad distribution expands and competitors enter the tablet market it may quicken the pace of decline in notebook PC sales.  Retailers will chase this change in consumer preferences.

FY 2011 Analyst Estimates: Why AAPL Is Set To Pop

Overview

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. 

The Apple iPad: A Uniquely Personal Device, A Global Revenue and Earnings Monster

Overview

I'm taking time out today not to talk so much about Apple's finances, but to talk about an amazing product that is a catalyst for another era of spectacular growth for the maker of Macs, iPhones and iPods. It's the Apple iPad. I'm sold on this product today and I look forward to the feature and functionality enhancements in the years to come.

In July I posted a blog entry about My $1,000 iPad Purchase Odyssey. Since the moment I unwrapped and powered up this device the manner in which I do many things from read the news, surf the Web and organize my work day have changed in dramatic ways. 

In a recent Apple 2.0 column Philip Elmer-DeWitt quotes Morgan Stanley's Katy Huberty about her claim Apple has told suppliers to ramp up for a run rate of 3 million iPads a month. I believe the global market can support sales of at least 3 million iPads a month and more. This is the most immersive digital device I have ever owned and about the most productive digital device I could bring to my office. 

Assuming for a moment Katy Huberty's claim is accurate and Apple has told suppliers to ramp up for a 3 million unit a month run rate, in fiscal year 2011 Apple would generate more revenue from the iPad alone than the company generated from all sources as recently as three years ago in fiscal year 2007, including retrospective adjustments to revenue from iPhone sales. 

The Apple iPad is a revenue and earnings monster. It will chomp on netbook and laptop sales, sales of handheld gaming devices and drink up revenue from book and software sales as old economy industries such as newspapers and magazines adapt to the iPad economy and software developers migrate to the iOS devices.  

A Uniquely Personal Device

In the seven weeks I've owned an Apple iPad it's become my primary portal for news and information, for Web surfing and my favored device for concept development for projects at home and work. Beyond these necessary tasks the iPad is an excellent book reader and I'm discovering its many uses as a handheld theatre for home entertainment. This afternoon I downloaded Epic Citadel and explored this application as a preview of games to come.

My favorite news apps are: NPR for iPad, the BBC News, AP News and NYT Editors' Choice.  Each of these apps showcase why the Apple iPad is a news reader beyond compare.