AmTech ups estimates as Apple market cap surpasses Intel and IBM

[AppleInsider]

Analysts for investment research firm American Technology Research increased their estimates for Mac maker Apple Inc. on Tuesday as the company's perceived market value coasted past that of industry heavyweights Intel Corp. and IBM Corp.

Shares of Apple were trading up $12.19 or nearly 7 percent to $186.55 on the Nasdaq stock market in early morning trading following a stellar fourth fiscal quarter that beat Wall Street's consensus estimates hands down.

With nearly 870 million shares outstanding, the Cupertino-based firm's market capitalization now stands at nearly $162 billion, surpassing Intel at $155 billion and IBM at $157 billion. Apple's perceived market value is rapidly closing in on Google ($200 billion), but remains quite a ways behind Microsoft ($290 billion).

In a research note released to clients early Tuesday, American Technology Research analyst Shaw Wu said shares of Apple are poised to trade even higher over the next six to twelve months.

He raised his fiscal year 2008 earnings estimate to $5.00 per share on sales of $30.4 billion (up from $4.55 and $30 billion) and also increased his 12-month price target to $210 from $185.

In addition, Wu used the research note Tuesday to introduce his first estimates for Apple's 2009 fiscal year, which currently forecast per-share earnings of $5.70 on sales of $34.5 billion.

For Apple's current December quarter (fiscal Q108), the analyst is modeling for per-share earnings of $1.50 on sales of $9.2 billion, which factor in expected sales of 2.3 million Macs, 24 million iPods and 2 million iPhones.



"In our view, Apple's move to subscription accounting in its new, high-growth business areas, iPhone and Apple TV, may signal that earnings-per-share (EPS) is not the best way to value Apple shares. This is because EPS is amortized and understated on a quarterly basis while cash flow remains the same," he wrote.

"Therefore, cash flow from operations may be a more appropriate way to value Apple shares. We see upside in Apple shares to $210 in 6-12 months based on 26 times our calendar year 2008 FCF (free cash flow) estimate of $7.50 plus $17 in net cash."

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[anantksundaram]

Originally Posted by AppleInsider

"In our view, Apple's move to subscription accounting in its new, high-growth business areas, iPhone and Apple TV, may signal that earnings-per-share (EPS) is not the best way to value Apple shares. This is because EPS is amortized and understated on a quarterly basis while cash flow remains the same," he wrote.

"Therefore, cash flow from operations may be a more appropriate way to value Apple shares. We see upside in Apple shares to $210 in 6-12 months based on 26 times our calendar year 2008 FCF (free cash flow) estimate of $7.50 plus $17 in net cash."

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I am afraid this guy needs to to better. EPS is never "the best way" to value any shares. Forecasting an EPS and slapping on a P/E multiple is a slightly lazy, and somewhat short-handed, back-of-the-envelope approach to valuation, and should not be used in any serious assessment of long-run intrinsic value.

"Cash Flow from Operations"!? Pure nonsense, and a somewhat meaningless metric in and of itself.

The only comprehensive metric that matters for assessing intrinsic value is "Free Cash Flow." Period.

[montefuego]

Anantksundaram,
So how would you, personally, evaluate Apple's stock? What are your thoughts?

steve

[TednDi]

Apple is Doomed!!

[anantksundaram]

Originally Posted by montefuego

Anantksundaram,
So how would you, personally, evaluate Apple's stock? What are your thoughts?

steve

Not to be coy or cute-sy or anything, but there is this old saying about there being only two rules to successful investing: Rule #1 is "never reveal everything you know."



That said, while I am quite happy to do a quick-and-dirty generic tutorial on biz valuation, it will move people to tears of boredom! But let me recommend an outstanding link:

http://pages.stern.nyu.edu/~adamodar...uation/val.htm

[montefuego]

Originally Posted by anantksundaram

Not to be coy or cute-sy or anything, but there is this old saying about there being only two rules to successful investing: Rule #1 is "never reveal everything you know."



That said, while I am quite happy to do a quick-and-dirty generic tutorial on biz valuation, it will move people to tears of boredom! But let me recommend an outstanding link:

http://pages.stern.nyu.edu/~adamodar...uation/val.htm

First of all, most advisors, if they hold a stock, want others to share in the glorious news of its value in order to induce them to buy and so drive the price up.

Second, That page is a swamp of confusing references. Too much for me to navigate.

Third, I wasn't asking for the method of evaluating stocks. I was asking for YOUR EVALUATION of Apple. In other words, your conclusions about Apple using whatever method of evaluation you choose.

thanks!

Steve

[SpamSandwich]

OMGWTFBBQ!!! Amazing run up today... I'm floored!

[Foo2]

According to www.nasdaq.com, Google's market cap is $155B, not $200B, so Apple has already surpassed it. In recent past, the two have been leapfrogging each other. Today, Apple took a leopard leap.

N.B. these valuations are rife with speculation about sustained growth. For example, Apple's quarterly revenue was 4x lower than IBM's.

[anantksundaram]

Originally Posted by montefuego

First of all, most advisors, if they hold a stock, want others to share in the glorious news of its value in order to induce them to buy and so drive the price up.

Second, That page is a swamp of confusing references. Too much for me to navigate.

Third, I wasn't asking for the method of evaluating stocks. I was asking for YOUR EVALUATION of Apple. In other words, your conclusions about Apple using whatever method of evaluation you choose.

thanks!

Steve

I am not an advisor. And, I have zero interest in inducing others to buy or in hoping to drive the price up. That has little to do with creating and sustaining long-run value.

Sorry that you found the page to a "swamp of confusing references." I was trying to be helpful. (That is, in part, what I meant when I said it would bore people to tears to get into the details. There isn't a Cliff-notes way to do this.)

My personal recommendation (i.e., whether someone should buy, sell, or hold Apple at $185) means nothing at all. My original comment was -- whether that appealed to you or not -- about Shaw Wu's references to "EPS" and "Operating Cash Flow"-based methods for evaluating Apple's stock value.

[Foo2]

How about correcting the valuation given for Google? Today, it's $155B, not $200B.

A better way to put these companies in perspective, in relation to their valuations, would be to look at gross revenue and profitability. E.g. IBM's valuation is now somewhat below Apple's, but IBM's gross revenue is roughly 4X higher. In rough terms, Apple will need to grow 4-fold before reaching the manufacturing and services productivity of IBM. If that growth happens smoothly at the presence pace, that will be quite an achievement!

[Fairly]

Originally Posted by Foo2

According to www.nasdaq.com, Google's market cap is $155B, not $200B, so Apple has already surpassed it.

Apple is the biggest company in the world!! Apple is bigger than GOD!!

I'm going to sell.

[Ireland]

Originally Posted by SpamSandwich

OMGWTFBBQ!!!

Great, I'll have two burgers and hot-dog.

[digitalclips]

Originally Posted by Fairly

Apple is the biggest company in the world!! Apple is bigger than GOD!!

I'm going to sell.

I'll give you $50 a share, ok?

[eridium]

Originally Posted by anantksundaram

My original comment was -- whether that appealed to you or not -- about Shaw Wu's references to "EPS" and "Operating Cash Flow"-based methods for evaluating Apple's stock value.

I find it meaningless that you criticize his references without offering your superior financial analysis. When pressed to do so, you shirk: "Rule #1 is "never reveal everything you know." If you have nothing of consequence to say then don't waste y/our time writing posts that are even more self-discrediting than Shaw Wu's little investment brief.

[NoahJ]

Originally Posted by TednDi

Apple is Doomed!!

I think you mean:

Apple is teh Doomed!

Their stock run-up has been amazing and I believe will continue for a while longer. As many may know, the stock market is mostly just a big popularity contest. Some are popular because they really are great companies and some are popular just because they are popular, and some are both. You decide which is the case. (I personally believe that Apple is currently enjoying the last situation.) They are going to keep going up, but eventually will have a sharp correction. (Followed by another run-up if they can keep firing on all cylinders.) Look at their stock history, it seems to be a good pattern for them.

[anantksundaram]

Originally Posted by eridium

I find it meaningless that you criticize his references without offering your superior financial analysis. When pressed to do so, you shirk: "Rule #1 is "never reveal everything you know." If you have nothing of consequence to say then don't waste y/our time writing posts that are even more self-discrediting than Shaw Wu's little investment brief.

LOL. You find it meaningless? No, you missed the point.

(1) I was not criticizing his references (whatever they were), but his methodology; (2) I was making a general point about valuation methods, not about Wu's specific call; (3) In fact, if you'll read his sentence that I cut and pasted, it refers to "free cash flow" that he used in his model, in brackets (re-read it, please) -- given that, it made absolutely no sense for him to say "cash flow from operations may be a more appropriate way to value Apple shares;" not only was he then contradicting his own work, but also confusing the issue.

I have simply no interest in offering "stock picks" to people like you whom I neither know (nor care about). Just skip the friggin' post, man, if it is a waste of your time! Indeed, don't debase your own point about wasting time by then wasting the time you took to respond.

[nvidia2008]

Originally Posted by NoahJ

I think you mean:
Apple is teh Doomed!

Heh

Originally Posted by AppleInsider

...Apple's move to subscription accounting in its new, high-growth business areas, iPhone and Apple TV...

I swear if I ever met an "analyst" I would punch them in the face straight away. AppleTV is a high-growth business area? Cheap, cheap trick to mash in AppleTV with iPhone, a totally different thing... That they are both subscription accounting, is a very very minor issue in relation to AppleTV. Bloody hell.

Originally Posted by Foo2

How about correcting the valuation given for Google? Today, it's $155B, not $200B....A better way to put these companies in perspective, in relation to their valuations, would be to look at gross revenue and profitability. E.g. IBM's valuation is now somewhat below Apple's, but IBM's gross revenue is roughly 4X higher. In rough terms, Apple will need to grow 4-fold before reaching the manufacturing and services productivity of IBM. If that growth happens smoothly at the presence pace, that will be quite an achievement!

Their 3rd-quarter net income (US Fiscal 4th quarter) was $2.36 billion on revenue of $24.1 billion... ( http://uk.reuters.com/article/busine...e=businessNews )

Apple: net income $904 million, on sales of $6.22 billion ....

IBM revenue for this past quarter is 3.9 times more than Apple, profits however only 2.6 times more than Apple...

[Are my numbers right above?? ]