Many Partake Of Apple's Fruit

6/14/2010


  Recent Price
$249
  Dividend
$0.00
  Yield

0.0%

  P/E Ratio
25
  Shares (millions)
923
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$272.46- - $132.88

Not even the recession curbed consumer appetites for Apple’s ($249; AAPL) menu of pricey digital devices. The iPhone, iPod music player, and Macintosh computers drove year-to-year revenue growth of at least 20% in each of the past 12 quarters.

Per-share profits jumped 51% over the last year, while returns on assets and equity rose. Yet the shares seem reasonably priced relative to their growth potential at 25 times trailing earnings, 19% below the five-year average P/E ratio. The moderate valuation, combined with Apple’s increasing visibility and brand awareness, qualify the stock as a Long-Term Buy.

Business breakdown

All of Apple’s business units — big and small — generated sales growth in the March quarter. First the big — Apple’s iPhone and related accessories, responsible for 37% of revenue in the past 12 months, shipped a record 8.8 million units in the March quarter, up 131% from a year earlier. New opportunities could open up in the U.S. when Apple ends its exclusive partnership with AT&T ($25; T).

In June, Apple introduced the iPhone 4, featuring sharper resolution, better network reception, and a camera that lets users make video calls. The iPhone, sold by 151 carriers in 88 countries, enjoys huge growth potential overseas and could position Apple to become a top-five maker of handsets in coming years.

Macintosh (30% of revenue) has plenty of growth ahead, especially in the midrange price market of $700 to $1,199. In April, Apple gave its notebooks faster processors, better graphics, and longer-lasting batteries.

Apple holds 70% of the U.S. market for MP3 music players and continues to gain share overseas. That dominance has attracted the attention of U.S. antitrust officials. Customers load their iPods (16%) with music and other audio content, much of it from Apple’s iTunes online store (the major driver of the music products segment’s 8% of 12-month sales).

The company also sells software (5%) and peripherals and other hardware (3%), and its App Store (1%) offers 185,000 applications and has seen more than 4 billion downloads for the iPad tablet computer and iPhone.

Not reflected in recent results is Apple’s latest gadget, the iPad. This laptop-phone hybrid went on sale in early April in the U.S. and debuted in foreign markets in May. The iPad will likely pressure profit margins, but it gives Apple a presence in the market for lower-price netbook computers.

Conclusion

Apple shares seem to shudder with every sneeze from Steve Jobs, the CEO with the Midas touch and high-profile health problems. Jobs, 55, underwent surgery for pancreatic cancer in 2004 and reportedly received a liver transplant in 2009. In the long run, the company should do fine regardless of Jobs’ health — as long as it keeps launching new products.

In fiscal 2010 ending September, Wall Street expects 48% higher per-share profits on 63% sales growth. Such projections sound aggressive, but Apple has shown an ability to take new markets by storm and habitually blow past analyst estimates. An annual report for Apple is available at 1 Infinite Loop, MS 301-4IR, Cupertino, CA 95014; (408) 974-3123; www.apple.com.

APPLE
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Mar '10 $3.33 vs. $1.79 + 49% $237.48 -

$190.25

28 - 22
Dec '09 3.67 vs. 2.50 + 32% 213.95 - 180.70 29 - 24
Sep '09 1.82 vs. 1.26 + 55% 188.90 - 134.42 27 - 19
Jun '09 1.35 vs.

1.19

+ 30% 146.40 - 103.89 22 - 15
           
Year
(Sep.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2009 $42.91 $7.46 $0.00 $188.90
-
$78.20 25 - 10
2008 $32.48 $5.36 $0.00 202.96
-
100.59 38 - 19
2007 $24.01 $3.93 $0.00 155.00
-
72.60 39 - 18
2006 $19.32 $2.27 $0.00 86.40
-
47.87 38 - 21
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
98 96 45 100 99 84 91

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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