Apple will announce fiscal Q1 2012 earnings on January 24. On its Q4 conference call, the company provided EPS guidance for Q1 of $9.30 per share. At the time, this was above the Wall Street consensus estimate, but Apple sold off anyway as Q4 disappointed. iPhone 4S sales lagged as consumers waited for the release of the iPhone 4S.
Wall Street consensus EPS for Q1 is $9.897 per share, 6.4% higher than company's guidance. Put another way, Apple is set up to materially beat consensus.
Assuming unit sales of 30mm iPhones (which is likely too low) and 12mm iPads (this could also prove to be conservative), 5mm MACS, and a 15% decline in iPod sales, Apple would generate earnings of $10.50 per share.
If we take $10.50 and follow the same earnings progression seen in 2010, then fiscal 2012 EPS would be over $45/share. At $45 of EPS, Apple is trading at 9.3x earnings. Based on these projections and barring any change in cash policy, Apple would end fiscal 2012 with $125 in cash per share. If we then look at the trading multiple ex-cash, Apple is trading at a ridiculously low 6.6x earnings.
Apple continues to have short-term, material growth catalysts that include the iPad 3 sometime in 2012, a LTM iPhone 5 sometime in 2012, an iTV product in late 2012 or 2013, continued adoption of the iCloud, and continuing increases in Mac sales as the Apple ecosystem continues to build.
Considering the growth catalysts, Apple should trade at a mid teens multiple, not a mid single digit. Further, the technical response to a dividend announcement, bringing a new universe of institutional investors to the table, could push the stock up.
It is very rare to have an investment opportunity that is both a growth story and a value play. Apple is just that opportunity. The Warren Buffett mantra of only swinging at fat pitches tells me to swing away with vigor.
Disclosure: I am long AAPL.
