Apple Still The Sweetest Fruit

3/14/2011


  Recent Price
$356
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
20
  Shares (millions)
933
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$364.90 - $199.25

Apple's ($356; AAPL) iPod helped upend the music industry's business model, and its iPad tablet could pose a similar threat to personal computers (PCs). One day after Apple unveiled its iPad 2, industry researcher Gartner ($38; IT) shaved more than 4% off its 2011 PC-sales forecast, which now calls for 11% growth. Apple sees tablet sales eventually overtaking PCs, with low-end laptops most vulnerable.

If a company is only as good as the products it makes, then Apple and its portfolio of winners — including the iPhone (39% of sales in the 12 months ended December), Macintosh (24%), iPad (13%), and iPod (11%) — looks quite strong. The stock is a Focus List Buy and a Long-Term Buy.

Apple's newest gadget

The slimmed-down iPad 2 runs on a processor twice as fast as the original model. Apple says about 80% of Fortune 100 companies are testing the iPad, with early adopters including General Electric ($21; GE), Wells Fargo ($33; WFC), and Medtronic ($40; MDT). The iPad already accompanies executives on sales calls, and hotels use it to check out guests. The iPad is even creeping into airplane cockpits as an alternative to paper charts. 

Ultimately, the strength of Apple's security features will be critical to corporate customers. Apple finds itself in a suddenly crowded field that includes Motorola Mobility's ($27; MMI) Xoom and forthcoming models from Hewlett-Packard ($42; HPQ) and Research In Motion ($65; RIMM). Apple estimates that 64 companies have tablets in development or production, but rivals will have trouble competing with the iPad's $499 price.

The iPad isn't Apple's only growth product. Shipments of the iPhone surged 87% in 2010, ahead of the 72% advance for all smartphones. Apple holds a 16% slice of the global smartphone market and a 27% share in the U.S. Since ending an exclusive U.S. partnership with AT&T ($28; T), Apple reports brisk sales for its iPhone 4 on Verizon Communications' ($36; VZ) network. Apple is also considering a partnership with China Mobile ($48; CHL).

Conclusion

The health of CEO Steve Jobs, who has been treated for a rare form of cancer and in January took his third medical leave since 2004, can move the stock. Jobs' frailty represents a significant risk, as he is literally the face of the company. But Apple has a deep bench of longtime managers and an army of developers among its nearly 47,000 employees. Even without Jobs, Apple should do just fine.

In the six months ended December, Apple generated growth of 69% for sales and 72% for per-share earnings. At 20 times trailing earnings, the stock looks attractive relative to that robust growth and trades at 30% below its five-year average. Apple's cash hoard has climbed to $29.98 billion, or $29 per share.

The consensus profit estimate for fiscal 2011 ending September has climbed 15% in the last 60 days and implies 52% growth. Shares trade at 15 times the fiscal 2011 estimate, just a 9% premium to its peer-group average. An annual report for Apple Inc. 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
Dec '10
6.43
vs.
3.67
+ 71%
326.66
-
277.77
22 - 18
Sep '10
4.64
vs.
1.82
+ 67%
294.73
-
235.56
24 - 19
Jun '10
3.51
vs.
1.35
+ 61%
279.01
-
199.25
27 - 20
Mar '10
3.33
vs.
1.33
+ 49%
237.48
-
190.25
29 - 23
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
65.23
15.15
0.00
294.73
-
180.70
19 - 12
2009
42.91
6.29
0.00
188.90
-
78.20
30 - 12
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
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
98
98
62
100
94
82
73

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


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