Apple Roundup: Mac, iPod Momentum to Continue With New Models, iPhone Estimates Going Up
Posted by Tiernan Ray
You asked for it, nay, you demanded it, and here several hours late (sorry) is a round-up of some views on Apple�s (AAPL) better-than-expected results, reported last night. And despite what was pegged in some precincts as a disappointing number of iPhone sales, some analysts are actually raising estimates for unit sales of the device:
W.R. Hambrecht analyst Matthew Kather just doesn�t believe chief executive Steve Jobs & Co. when they say gross profit margin is set to decline in the current, September-ending quarter. After turning in a 37% gross profit margin last quarter, he thinks Apple can deliver a 31% gross margin this quarter, versus the company�s forecast for a 7.6% decline in margin. He thinks the stock is worth $172, up from a prior valuation of $125, based on a multiple of 40x his new estimate for 2008 profit per share of $4.25 per share, excluding options expense, plus $15.50 per share in cash. Says Kather: �As the deferred revenue on the iPhone business becomes a more significant piece of the cash revenues in 2008, we believe an expanded 40x multiple is justified,� and �note that when the iPod business was first ramping in late 2002 to 2005, Apple�s forward multiple was mostly above the 40x range.� He�s raising his revenue estimate for this year by over half-a-billion dollars to $23.67 billion, and by a billion next year to $30.7 billion. While the iPhone has had a �slightly slower ramp� than Kather expected, it�s okay because the company �has many levers to accelerate adoption� including price cuts, subsidies, and hardware and software upgrades.
Goldman Sachs�s David Bailey declares, �iPhone hype notwithstanding, with the heart of Apple�s product cycle about to begin, we want to stay with the stock.� Bailey�s looking forward to a revamped iMac and new iPods, including the video iPod, this fall. He�s reducing his estimate for iPhone shipments from 12 million to 11 milion in calendar �08, but he thinks increasing strength in Mac and iPod sales, a better standing in the education market, and strong retail sales, and the ongoing benefits of Adobe�s (ADBE) Creative Suite 3 (which can spur Mac sales), should support the stock. In particular, the video iPod should be able to keep the music player business from being canibalized by the iPhone, says Bailey. Assuming higher sales to quench higher operating expenses, Bailey raises his earnings estimates this year and next to $3.71 and $4.38 from $3.58 and $4.30, respectively. His sales numbers are going up slightly, though not as much as Kather�s, to $23.6 billion this year and $28 billion next year. While somewhat perplexed by the big jump after hours in Apple stock, and expecting some pullback, Bailey is setting a new price target of $165 on the stock... (more)
Pacific Crest analyst Andy Hargreaves has another valuation metric, namely 30x projected free cash flow per share for 2008 of $5.75, boosting his price target to $175 from $130. Says Hargreaves, �services, accessories and notebooks are driving lasting gross margin gains.� Saying the Mac �continues to capture share in all markets,� Hargreaves expects refreshes of the Mac line to produce increasing sales volume for Apple. �Mac�s strongest geographic growth came from Europe and [Asia-Pacific] (excluding Japan), which we view as a powerful indicator of the worldwide attraction to Apple�s brand.� And Apple could break into the corporate market, says Hargreaves: �Additionally, we believe that consumer demand for Mac products is starting to pull them into the enterprise. Although we do not believe this is driving significant growth at the moment, it could develop into a powerful trend over the next 12 to 24 months.� Hargreaves has revised his iPhone estimates, expecting 1 million units in the current quarter after pushing 130,000 units out of the June quarter (which puts him above management�s forecast last night of 1 million units in total from the day of introduction through the end of this quarter). For calendar 2008, he�s now expecting 10.3 million units, up from just under 10 million units, and about 15 to 16 million units in calendar 2009, says Hargreaves. The big swing factor, Hargreaves says, is that in 2009, there will be a lot of variability in iPhone estimates because of the uncertainty of how many and which phone companies will be carrying the phone by that point. (Hargreaves expects Apple to stick with exclusive carrier arrangements in every country.) He says the bump-up in estimates for the iPhone is a big reason for raising his free-cash-flow estimates. �The cash flow number reflects the full revenue of the phone,� said Hargreaves in an interview. �For calendar 2008, you will get just under $4.6 billion in free cash flow just from the sale of the device alone, not counting the additional revenue� paid by phone companies for bounties and for Apple�s portion of the service revenue, plus sales of accessories. For 2008, Hargreaves� total sales and profit estimates for Apple are going up, at $29.2 billion in sales and $4.61 in profit per share.
Apple shares today closed up 7% at $146.69. The shares are up 4.29% the last five days.