Posts At Eventide AAPL Price Target: $590 Per Share

Few enterprises in recent history have captured the imagination and stirred the emotions of consumers like Apple. Ask most anyone their view of Apple and one is apt to hear spirited responses ranging from high admiration and praise for the company  to complaints about the way Apple seeks to control virtually all aspects of the user experience and the content available to purchase through the various iTunes and app stores. No matter the strong sentiment about Apple, few can dispute the company's extraordinary success and potential for continued growth.

Apple's Share Price Today

At Friday's closing price of $325.90, the shares are trading at levels last seen in the closing days of calendar year 2010. This is despite the fact the share price reached an all-time high of $364.90 in intra-day trading on February 16th. 

There are, of course, macro economic factors impacting Apple's share price performance and investors are currently trapped in a challenging market cycle. But for the first six months of the current fiscal year Apple's revenue has risen by 76.2% and earnings per share has moved higher by 83.2%. These rates of growth and anticipated similar rates of growth for the remainder of this fiscal year are not currently priced into the company's shares. 

On May 31st I published a posted titled Why I'm Bullish on Apple. In that post I mentioned the company's prospects for growth and the factors that will deliver outstanding revenue and earnings growth well into next fiscal year and put forward my current 12-month price target for AAPL of $590 per share. In this post I'll mention a number of other important factors that will deliver an 80% share price gain over the next twelve months.  I anticipate Apple will move back into a share price trading range of 17 times to 20 times trailing 12-month earnings that prevailed prior to April of this year. That trading range in future periods will represent a compression of the share price relative to earnings when the company's high cash balances are factored into the numbers. 

AAPL Share Price Forecast

The graph and table data below detail Apple's share price on the first day of the month following the release of the company's quarter earnings over the most recent six fiscal quarters and my share price forecasts for the next four fiscal quarters. 

				Quarterly
	Date	Price	Target Price	Price Change
	2/1/10	194.73
	5/3/10	266.35		36.78%
	8/2/10	261.85		-1.69%
	11/1/10	304.18		16.17%
	2/1/11	345.03		13.43%
	5/2/11	346.28		0.36%
	8/1/11		404	16.67%	Projected
	11/1/11		467	15.59%	Projected
	2/1/12		528	13.06%	Projected
	5/1/12		587	11.17%	Projected

The linear line in the graph above indicates the share price performance as of May 2nd the share price had fallen below the six quarter average for appreciation even as the pace revenue and earnings growth during Apple's 2nd fiscal quarter ended in March. Since May 2nd the share price has fallen an additional $20 from the closing price of $346.28 on that date and the shares are now trading at an extraordinarily low multiple of 15.53 times trailing 12-month earnings. I expect AAPL to return to a trading range of 17 times to 20 times trailing 12-month earnings over the next 60 days. The June quarter results to be release in late-July will confirm the earnings growth trend established in the first six months of the current fiscal year.

Price-Earnings Multiple Comparison

In addition to an earnings per share growth rate exceeding 80% during the first six months of the current fiscal year, Apple has over $70 in cash and marketable securities behind every share and no long-term debt on the balance sheet. 

Because of the company's hefty cash position there are two different ways in which the price-earnings multiple must be viewed. The graph and table data below detail the closing price and price-earnings valuations on the the first trading day of the month following the release of quarterly earnings. Removing the cash from the valuation model indicates as of May 2nd the shares were trading at a cash adjusted multiple of 13.15 times trailing 12 months earnings and 16.50 times trailing earnings if cash is not considered a material factor. Both metrics indicate the shares were trading well below what had become a fairly consistent trading range. 

Even at today's multiple of 15.53 times trailing 12-month earnings Apple's share price will reach above $425 per share by November 1st, following the release of September quarter numbers and with continued compression of the non-cash earnings multiple. There are no indications the current rate of earnings per share growth will slow between now and the end of the current fiscal year. Returning to an established valuation range will put the the share price above $465 by that date.

	Share	Trailing	Earnings	Cash Per	Cash Adj.	Cash Adj.	Cash %
Date	Price	Earnings	Multiple	Share	Share Price	Multiple	of Price
Feb 1, 2010	194.73	10.24	19.02	43.29	151.44	14.79	22.23%
May 3, 2010	266.35	11.78	22.61	45.19	221.16	18.77	16.97%
Aug 2, 2010	261.85	13.28	19.72	49.43	212.42	16.00	18.88%
Nov 1, 2010	304.18	15.15	20.08	54.92	249.26	16.45	18.06%
Feb 1, 2011	345.03	17.92	19.25	63.98	281.05	15.68	18.54%
May 2, 2011	346.28	20.99	16.50	70.27	276.01	13.15	20.29%

Cash As A Percentage Of The Share Price

On May 2nd the company's cash per share represented over 20% of the share price. At Friday's closing price the cash per share represented about 21.6% of the share price. Both of these percentages are at the high end of the scale when compared to the share price valuation range over the past 18 months. 

As the share price returns to an established trading range of 17 times to 20 times trailing 12-month earnings, it will still reflect  continued share price compression when cash per share is removed from the valuation model. Through the remainder of the current fiscal year Apple will add an additional $14 per share to the company's cash position raising total cash per share to around $85 by the end of the fiscal year in late September. 

Conclusions

There are macro economic factors impacting current stock market conditions and Apple's current valuation reflects this challenging environment for equity investors. Apple's current rate of revenue and earnings growth are not factored into today's share price. 

I expect the shares to return to an established trading range of 17 times to 20 times trailing 12-month earnings over the next 60 days and for earnings growth to propel the shares to my 12-month price target of $590 per share over the next four quarters. Please see my recent post titled Why I'm Bullish on Apple for a comprehensive review of the performance factors that will fuel strong revenue and earnings growth well in FY 2012 and lead to Apple's first $40 billion revenue quarter in the three-month period ending in December. 

Robert Paul Leitao

Disclosure: The author is long AAPL shares

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The objective of the Posts At Eventide web presence is to benefit readers seeking to understand Apple's financial performance and to serve as a repository of information and analysis for other independent AAPL analysts preparing quarterly estimates and share price forecasts. Please see the Posts At Eventide Resource Guide for more information.