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Posted on 11/25/2007 5:15:23 PM PST by Swordmaker
I have been writing about Apple Inc. (NASDAQ: AAPL) for the past ten months for AOL's BloggingStocks and have been a bull in every article. The shares have been a home run for investors in this difficult and challenging year. Apple is fast becoming the business school case study right before our very eyes as this company is executing flawlessly. Let's examine what's going on here in the calender fourth quarter -- Apple's fiscal first quarter of fiscal year 2008.
The stock has ranged these past 12 months from a low of $76 to a high of $192. Currently Apple is at $171 and this may be your last chance to buy it below $175. Apple finished its fiscal year 2007 with incredible numbers, margins, and more importantly, momentum, entering the new fiscal year. The new and improved Mac has taken market share and will continue to. The new operating system, Leopard, is enjoying rave reviews and quite frankly has the competition nervous. It should. The Mac sold 2.16 million units in the quarter ending in September, and the December quarter will only see upside to that number.
The revolutionary iPhone is exactly that: revolutionary. It is now the phone of choice from teenagers to the elderly. My two teenage children are only asking for one thing this Christmas -- the iPhone. With the price point down to $399, a whole new generation of buyers has emerged. Also, iPhone is debuting in Europe and Asia, where demand is already high. Apple will recognize iPhone revenues over a 24 month period as it matches the contract length of AT&T (NYSE: T), the service provider. Of course Apple will be reaping a portion of AT&T's monthly iPhone subscription revenue.
Apple is fast becoming the master of the razor-razor blade business model. Customers buy the iPod and/or the iPhone, and the revenue stream for Apple just gets started as the iTunes store and the AT&T revenue share begin to contribute very high margin, ongoing revenues. Apple is fast approaching its 3 billionth iTunes sale -- that's 3 billion!
The iPod is still a monster for Apple. With new versions having been released these past two or three months, many buyers are return customers purchasing their second or third units. Apple has sold more than 120 million iPods since its release in late 2002 and the surface has been barely scratched. The addressable audience for the iPod is north of a billion potential users. It's still in the second or third inning of a nine-inning game. iPhone is still taking batting practice.
A great observer and investor I know, Glenn Cohen, who lives in South Florida, called me on Wednesday and was jumping for joy about the Apple store. He sat and watched as the Apple store at the Boca Raton mall was packed -- this is the day before Thanksgiving -- with buyers. The lines at the " portable" cash registers were six or seven deep. What stunned Glenn was the major jewelry store next door, even larger than the Apple store in square footage, was empty.
Apple has endorsed a $9.32 billion revenue line for this December quarter and $1.42 in earnings per share. I believe this number will be exceeded as Apple has all cylinders operating in sync. Also, one important point often overlooked in the Apple story is component pricing. Apple has maintained terrific margins through superb pricing at the component level. Every semiconductor vendor would love to have Apple as a customer. Apple has and can continue to squeeze its suppliers, thus enhancing its own margins.
I estimate Apple will earn $5.10 per share in fiscal 2008 and $6.25 for fiscal year 2009. I also believe these numbers will be revised upwards several times before we see the end of fiscal year 2009. My price target on Apple is $225 ... and yes, this will likely go up as well.
Georges Yared is the CIO of Yared Investment Research and the author of Stop Losing Money Today.
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Shouldn't you have disclaimers on these "buy AAPL now before it's too late" threads?
I can get apples a lot cheaper than that:
It's going to be a major shock to the Microsoft guys when they wake up one day and realize that Apple is bigger.
Maybe at $230 there will be a 10-15% pullback.
Okay, you talked me into it. ;’) Buying it at $22 a share four years ago would have been a lot better though. What I really need from Apple is a *real* time machine, not just a software feature by that name...
:’) MS may be boring, but they’ve got a lot bigger numbers than Apple (for now, give or take fixing the Vista problem).
AAPL fell from $192 to $164 (interday low looks more like $155) and bounced, with a $3 gain on Friday. That’s what’s known in the stock trading biz as insanity. ;’) It’s a great company, but...
yeah, maybe.
and between now and then?
(It's a rhetorical question).
MSFT has more than double the market cap of APPL, but looking at the revenue and earnings growth that may get wiped out in 3-5 years. Apple's revenue is growing at 33% a year vs. MSFT 12%, and Apple has been growings its profits an incredible rate of over 100% for the past 5 years, versus a very respectable 20% for MSFT. APPL is still very undervalued at it's current growth rates. It may have a PE that is double of MSFT, but it's profits are growing 5 times faster.
I suppose the closest analogy might be back when MSFT had its IPO.
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