Apple radically more undervalued than others tech heavyweights

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Comments

  • Reply 21 of 65
    Look, at the end of the day, value comes from forecasted free cash flows (i.e., actual operating cash in minus operating cash out, net of operating working capital changes and long-term investment spending) discounted at the appropriate cost of capital (i.e., the return that investors can get from risk-equivalent assets).



    No more, no less. The rest is fluff.



    This analysis, while somewhat simplistic, is implicitly getting at both key metrics. By focusing on the non-GAAP revenue and earnings, as well as the cash position (which is a consequence of the high free cash flow) the author (Andy) is proxying for FCF; by focusing on Amazon, RIM, and Google, Andy is implicitly looking at risk-equivalent assets. His main argument is that AAPL is undervalued at current levels.



    Unfortunately, I do not have the time to present a detailed calculation of FCF and cost of capital here, but the directionality of Andy's overall conclusion (despite the simplified analysis) makes sense. I certainly have put (some of) my money where my mouth/analysis is. (But please note this is not a recommendation -- not by a long shot -- for any of you to do so; I am just sharing a personal view, that's all).
  • Reply 22 of 65
    Not all Wall Street analysts are so clueless about AAPL. The research note from Credit Suisse's Bill Shope argues along many of the same lines as Andy does:



    Quote:

    New non-GAAP measure makes iPhone profitability more transparent.

    Apple began issuing non-GAAP financials that reverse the ratable

    accounting for the iPhone. This more appropriate financial measure boosts

    the reported September quarter revenues by 48% and more than doubled

    EPS



    Lowering estimates and introducing non-GAAP forecasts. For fiscal

    2009, we are forecasting GAAP revenues of $34.85 billion and EPS of

    $5.08, versus $35.4 billion and $5.19 previously. Our fiscal 2009 non-GAAP

    estimates are $40.02 billion and $6.99.



    Reiterate Outperform and 12-month target price of $135. Apple is trading

    at 13.9 times our calendar 2009 non-GAAP EPS estimate. U.S. consumer

    exposure remains a risk, but iPhone profit strength and the leaner valuation

    make the risk-reward for the shares far more compelling.



    Personally I think that Andy is spot on with his analysis and it's great to read financial research that's both enlightening and fun to read!
  • Reply 23 of 65
    Quote:
    Originally Posted by anantksundaram View Post


    Look, at the end of the day, value comes from forecasted free cash flows (i.e., actual operating cash in minus operating cash out, net of operating working capital changes and long-term investment spending) discounted at the appropriate cost of capital (i.e., the return that investors can get from risk-equivalent assets).



    No more, no less. The rest is fluff.



    This analysis, while somewhat simplistic, is implicitly getting at both key metrics. By focusing on the non-GAAP revenue and earnings, as well as the cash position (which is a consequence of the high free cash flow) the author (Andy) is proxying for FCF; by focusing on Amazon, RIM, and Google, Andy is implicitly looking at risk-equivalent assets. His main argument is that AAPL is undervalued at current levels.



    Unfortunately, I do not have the time to present a detailed calculation of FCF and cost of capital here, but the directionality of Andy's overall conclusion (despite the simplified analysis) makes sense. I certainly have put (some of) my money where my mouth/analysis is. (But please note this is not a recommendation -- not by a long shot -- for any of you to do so; I am just sharing a personal view, that's all).



    Thank you. This is exactly what I'm teasing out in this article. The only problem is that investors don't pay attention to metrics such as P/FCF. So you have to reconstruct it in a way where the powers of cash come to light. Notice I use the trailing P/E ratio in my analysts with no mention made to forward P/E. I do this for two reasons. First, forward P/E is based on analyst hallucinations about the future while trailing P/E is how the company has ACTUALLY performed, and secondly, most investors, whether right or wrong, tend to focus on trailing P/E as the primary metric of valuation-thus it would be ill advised to ignore it.



    I use operating cash flow as a huge valuation source since how much a company derives in cash from its primary operations is literally getting to the core of the company. Its burning away all of the nonsense and telling the investor what a company is really worth. The big problem, as I see it, is that the market simply doesn't look at P/FCF. Most people talk in terms of P/E ratios when they should be speaking in terms of cash. Lucky for Apple, that cash they are producing will eventually make its way to the bottom line under its deferred revenue mechanism.
  • Reply 24 of 65
    ajitmdajitmd Posts: 365member
    If we just get a palin recession, the stock is ok valued and the other stocks mentioned are still overvalued. Apple's quarterly CC, discusses non-GAAP numbers and its PE at around 12, all backward looking. The whole economy and the GDP has been credit driven, even though Apple has not debt. If the consumer pulls back dramatically, it would get hit AAPL as well. So caution is warranted. Most imprtant, got to have holding power.



    The rest of the market has "low PE" is I sit on the horse backwards and look what has gone buy.

    Just look at the metal, steel, oil companies. Dirt cheap PEs looking back, while the underlying commodity collapsed and this is not reflected in the P or the E.
  • Reply 25 of 65
    Since knowledge is power, analysis chock-full with relatively unpublicized metrics

    is always welcome.



    Sell-side investment advice is bimodal, with many potential investors just hearing

    soundbites from the likes of Cramer and Orman. Others pay up for the reports of

    the over two dozen analysts who file estimates with First Call. Zaky's stuff fills

    a void.



    His relative valuation work is especially insightful, as it highlights a defect in

    the short thesis that Apple fell off a cliff only due to the Wall St. derivatives mess

    and housing bubble collapse creating a disturbance in the consumer confidence force field.

    That is, if AAPL is to be trashed due this reason, the others should be moreso.

    (My own take is that Apple's aspirational-type of appeal will buffer it from

    a holiday downturn.)



    Due to the tech stock divergence, there are a few other factors to be explored.

    One is that AAPL stock is traditionally high-beta -- if it paid a dividend like

    INTC or MSFT, perhaps the charts would smooth out, even though dividends

    have been a mirage lately for the traditionally low-beta, low P/E financial stocks.

    Or, perhaps AAPL really is specially targeted by a mini-cabal of short-lenders

    in a feedback loop with the second-derivative of analyst downgrades and

    AAPL ticker highlights on CNBC, all amplified by program & algorithmic trading.



    Zaky, Muller, and Deagol are to be commended for ferreting this stuff out.

    Their grassroots analysis reminds me of Eric Yang's scribing of yesteryore -- last

    I heard, years ago, is that he traded AAPL analysis for med school. If you cross

    paths with him, send him best wishes ...
  • Reply 26 of 65
    Andy,



    I apprecaite your work and you posting it here very much.

    I hope you will continue to do so.
  • Reply 27 of 65
    Quote:
    Originally Posted by lolick View Post


    Andy,



    I apprecaite your work and you posting it here very much.

    I hope you will continue to do so.



    seconded
  • Reply 28 of 65
    Quote:
    Originally Posted by monstrosity View Post


    seconded



    Thirded (ok, not a word). Well articulated. I think that we all get the macro forces working against Apple right now but your post does a REALLY good job of parsing the micro-specifics that rationalize the stock price relative to its peers.



    Much appreciated.



    Mark
  • Reply 29 of 65
    pxtpxt Posts: 683member
    ( oops - removed )
  • Reply 30 of 65
    Quote:
    Originally Posted by monstrosity View Post


    Please re-read your post in six months to see how wrong you are. Expansion in foreign markets will counteract any (if any) decline attributable to people losing jobs.



    Please re-read YOUR post in 6 months and see how wrong you are. There is no expansion in foreign markets. Not at all to the scale it could be. Sales will not increase in foreign markets. The United States is not the only country going through economic crisis. The stock market around the world is suffering right now and thousands of jobs are being lost in markets in; Asia, Europe, North/South America, and Australia. We are not the only country with a decline so the global market is not going to rescue any company at this point.
  • Reply 31 of 65
    Quote:
    Originally Posted by Daniel0418 View Post


    Please re-read YOUR post in 6 months and see how wrong you are. .



    OK we shall see.I will be surprised if there is any significant drop whatsoever overall.

    There is also the recently updated portable line to add to the equation.
  • Reply 32 of 65
    Quote:
    Originally Posted by Daniel0418 View Post


    Please re-read YOUR post in 6 months and see how wrong you are. There is no expansion in foreign markets.



    That's one glass-half-empty vote for the meaninglessness of any forthcoming Apple

    iPhone deal in China, or the build-out of Apple stores there! Why should we trust

    this contrary opinion more than one from someone who has a direct line to

    the overseas consumer, like AAPL BOD member Andrea Jung?



    And, to the worthy in the grandparent posting, who wonders about those with

    job losses not affording Apple gear, here's a good one from this morning's

    Wall St. Journal:



    http://online.wsj.com/article/SB1225...tml?mod=crnews



    Instead of hurting Apple, the (real or perceived, no matter) downturn can

    actually benefit Apple, in this case via iPhone/iPod Touch uptake.



    The entire thesis that economic woes hurt Apple particularly worse may be suspect.

    Apple store shoppers are not the same as the WalMart demographic, though

    Apple has that covered too, with IPods at Costco, etc. It may be that the

    *last* thing given up as gifts are Apple goods, since they are so high-quality compared

    to the plebian while-box computer, .mp3 player, and cheap plastic cellphone riff-faff.
  • Reply 33 of 65
    Quote:
    Originally Posted by cameronj View Post


    Telling novice investors not to buy this crap is about the most valuable lesson they can get. It's just an over-worded whine by an investor who has obviously lost a lot of money and has conspiracy issues. A novice investor would be smart to try to learn why the market works the way it does, not listen to this hack complain about mysterious unnamed (and named) forces thwarting the market.



    You're negative, mean, arrogant, haughty and brash with each of your words. You are not nearly as well-informed as you think you are.



    I do not like you.
  • Reply 34 of 65
    Quote:
    Originally Posted by iOrlando View Post


    If you are 17, and one of your parents just lost their job...will you be going out and getting a $1800 laptop for christmas?



    If you lost your job, would you be going out getting a $1400 laptop just to have it?



    Apple is down because consumers are hurting. That simple.



    Your assertion is completely illogical.



    "Apple is down because consumers are hurting, and can't afford new laptops?"



    Apple's stock price is down because the entire world market is down.



    "EVERYBODY's stock is down, NEEEGAH!!!"



    Apple's profits and growth, however, are positive double-digits right now, which means people are buying plenty of laptops, regardless of the economy.



    The first person to identify my quote wins a dollar. LOL....
  • Reply 35 of 65
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by echosonic View Post


    You're negative, mean, arrogant, haughty and brash with each of your words. You are not nearly as well-informed as you think you are.



    Keep thinking that.



    Ivy league economics degree, founded the investing club at said University.



    You can not like me, but listening to Zaky (outside the numerical analysis, which I have no argument with) is inviting bad investing decisions. He blames all sorts of the wrong things for what has happened to his (and my) AAPL stock.



    It doesn't surprise me that some people are glad to read what he's writing - he likes to give people someone to blame. Makes people feel good to be able to be angry at someone, rather than have to blame themselves for not understanding how the market functions and for not seeing the fall coming (I didn't see it coming either). But it's pointless.
  • Reply 36 of 65
    Cameronj, for somebody that didn't see the September/October collapse coming how can you sound so confident about anything? The Sep/Oct collapse wasn't exactly hard to see coming and I didn't even go to college much less start the investing club at an Ivy League University \



    Andy was brilliant in predicting Apple's fourth quarter numbers, period. Why don't you put your predictions up against Andy's for Apple's first quarter?
  • Reply 37 of 65
    Quote:
    Originally Posted by cameronj View Post


    Ivy league economics degree, founded the investing club at said University.



    Wow, that has to be one of the most snobbish responses I have ever seen. Having an Ivy League degree does not make you better than everyone else, despite what they probably tell you at those schools. Not everybody has the money to attend Ivy League schools, and I'm sure I can find plenty of people at my "lowly" Big Ten school that are plenty smarter than a lot of people at Harvard, Cornell, or any other Ivy League school. Not having a rich daddy or connections doesn't make someone a less informed person.



    Sorry to digress, I'll get off my soap box now.
  • Reply 38 of 65
    Quote:
    Originally Posted by cameronj View Post


    Keep thinking that.



    Ivy league economics degree, founded the investing club at said University.



    You can not like me, but listening to Zaky (outside the numerical analysis, which I have no argument with) is inviting bad investing decisions. He blames all sorts of the wrong things for what has happened to his (and my) AAPL stock.



    It doesn't surprise me that some people are glad to read what he's writing - he likes to give people someone to blame. Makes people feel good to be able to be angry at someone, rather than have to blame themselves for not understanding how the market functions and for not seeing the fall coming (I didn't see it coming either). But it's pointless.



    What?s the difference between a recession and a depression?



    If your neighbor loses his job, it?s a recession.

    If you lose your job, it?s a depression.





    How many times does Microsoft have to screw up their operating system before OS X take over?



    Probably about one more time.

    Then Linux gets a bunch of the low end and Apple the mid and high end.





    When you disagree with Andy, why not explain why you disagree in a respectable manner, and present your alternative?



    I?ll let you answer that one.
  • Reply 39 of 65
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by one9deuce View Post


    Andy was brilliant in predicting Apple's fourth quarter numbers, period. Why don't you put your predictions up against Andy's for Apple's first quarter?



    Because I don't try to predict earnings. As I've said, I have no disagreement with his math on the numbers, both for Apple and the market. Its his whining, blaming tone when he tries to find reasons why Apple is priced at $100 instead of $300 that drives me nuts. He can't accept that its the market, stupid. It's not a conspiracy.
  • Reply 40 of 65
    cameronjcameronj Posts: 2,357member
    Quote:
    Originally Posted by hittrj01 View Post


    Wow, that has to be one of the most snobbish responses I have ever seen. Having an Ivy League degree does not make you better than everyone else, despite what they probably tell you at those schools. Not everybody has the money to attend Ivy League schools, and I'm sure I can find plenty of people at my "lowly" Big Ten school that are plenty smarter than a lot of people at Harvard, Cornell, or any other Ivy League school. Not having a rich daddy or connections doesn't make someone a less informed person.



    Sorry to digress, I'll get off my soap box now.



    I know, doesn't it suck when someone says "you're not as well informed as you think you are" and you have to reply by listing your qualifications? And then everyone gets bitter because they think your high qualifications are elitist? What a pain it is to be educated.
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