Apple Price Target: $790 Per Share

Today, I am publishing an updated price target for Apple of $790 per share. This target forecasts a 60% gain in the share price from the closing price of $493.42 on Friday, February 10, 2012. I consider this price target to be moderate based on the expectations of strong revenue and earnings growth over the next 12 months and the low valuation range in which the shares currently trade, despite the recent run-up in price. 

Over the past 10 trading days, the shares have risen about 10% from the closing price of $447.28 on January 27th to Friday's closing price of $493.42. However, this recent gain is a market response to Apple's strong December quarter outcome and does not represent a new valuation range for the shares. The shares continue to trade at a significant discount to near-term growth. 

Apple's Current Valuation

The graph below illustrates, despite the near 100% growth in earnings per share over the most recent four fiscal quarters, at Friday's closing price the shares have risen only 43% in value since February 1, 2011. 

Over the past 12 months the company's cash and marketable securities per share has continued to rise as a percentage of the share price. At Friday's closing price, cash and marketable securities per share represented 21% of the share price.  

Apple: Rising Revenue, Falling Costs Per Revenue Dollar

For the 14-week period ended December 31, 2011, Apple reported record revenue in the fiscal quarter of $46.333 billion representing a 73% year-over-year gain. The company also reported a 115.7% rise in earnings per share to $13.87. No one can dispute the success of the company's popular products. But Apple's extraordinary eps growth in the December quarter and eps growth over the past two fiscal years was influenced by more than revenue growth alone. The company's focus on cost discipline is generating earnings growth at a much faster pace than the underlying rate of growth in revenue. 

Apple's Net Income Per Revenue Dollar

The graph below illustrates the rising percentage of reported revenue that has flowed to the net income line over the most recent nine fiscal quarters. In the December quarter 27.90% of reported revenue flowed to the net income line. This does not include the beneficial impact on net income from interest and other returns on the company's holdings in cash and marketable securities. The value of those assets totaled $97.6 billion at the end of the December quarter. 

Apple's Expenses Per Revenue Dollar

Over the most recent nine fiscal quarters, the percentage of reported revenue consumed by expenses has fallen from a high of 79.60% in the 3rd quarter of FY2010 to a low of 72.10% in the recent 1st quarter of FY2012. The graph below illustrates the percentage of revenue consumed by cost of sales (the inverse of gross margin), operating expenses and taxes.