Friday, August 7, 2009

Apple to $1,000?

Pretty shocking to see a site like Minyanville.com listing a article detailing how Apple (AAPL) could reach $1,000 in 5 years from what was $140s when the report was written in June. Anybody following the markets knows Minyanville.com as being a normally bearish site.

AAPL has huge potential as the article points out via 13 reasons. The iPhone is dominating the smartphone world yet its only avaliable via one carrier - AT&T. The Mac continues to gain market share but still has a very, very low market share that the iPhone and iPod will continue to help drive higher. The iTablet is now being rumored and that could have a huge potential.

As of late we've not put much focus on the long term value of a stock as its become a trading market. AAPL is very undervalued compared to its $30 in cash and $10+ eps for '10. Those conservative estimates during a tough economy should give AAPL a much higher then 13x EV multiple. Multiple will easily expand to double that.

Some key points from the article including the author's targets.
  • In the following article, I want to lay out an analytical framework for understanding how AppleAAPL) could reach $200 by late July, $300+ by late 2009, $400+ by late 2010 and $1,000+ by 2015.
  • Incorporating these baby steps into an earnings model, I get pro forma earnings of about $11 and free cash flow (or FCF) of about $13 for fiscal year 2010. Note that these estimates are within striking distance of the estimates of several street analysts.
  • Applying a conservative FCF yield of 4.5% on the 2010 FCF, the stock should be trading at around $289. Assuming a 5-year earnings per share (or EPS) growth of 18%, and applying a price/earnings to growth (or PEG) multiple of 1.5 to 2010 pro forma earnings, produces a price target of $297. Now add in the approximately $30 per share of cash on the balance sheet, and you have a stock that, only accounting for the factors that have been announced, could well be well above $300 by the end of 2009.
  • Invasion of the Chinese market. First with iPhone, then with Mac. I lived in China, and have witnessed the power of the Apple brand there. The potential is mind-boggling. Apple is an aspirational brand with which all young people want to be associated.

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