You will be reading this article on Monday June 25th -- just 4 days before the launch of the Apple's (NASDAQ: AAPL) much anticipated iPhone. Analysts are gingerly trying to re-model the September 30, 2008 fiscal year: how much can iPhone contribute? How much visibility can iPhone provide to Apple's numbers for 2008, 2009 and beyond. I distinguish between "contribute" and "visibility" because Apple is going to recognize the iPhone revenues over the 24 month subscriber-contractual period.
iPhone will most likely re-set the standards for the cell phone industry. The hype surrounding the iPhone has been huge: the early adopters will provide all the headlines necessary to keep the iPhone front and center. The Apple retail store at the Mall of America outside Minneapolis expects record foot traffic and of course, sales. A senior employee told me that the interest has been "way, way more than expected".
Apple has guided the Street to expect sales of the iPhone at 10 million units by the end of 2008. This number is extremely conservative. For a point of reference, Motorola (NYSE: MOT) sold 50 million RAZR units between 2004 to 2006. The iPhone is, in a nut shell, simple to use and elegant. The software functionality will set it apart from all other cell phones. My prediction is the iPhone will be a run-away success for the next 3-5 years. So what about Apple's stock?
I have been recommending Apple's stock since the price was a teenager. With the stock trading at a $123 it still is a buy. Sure, the easy money has been made from the $12 level. The stock is not a ten-bagger, not even a 5 bagger from here over the next couple of years, but it could double. The earnings progression should be substantial over these next 3-5 years, with a sustainable minimum growth rate of 25%. I estimate September 30, 2008 earnings per share is conservative at $4.00-4.10. With momentum from the iphone and of course Apple's other mega-franchise players, 2008 earnings could accelerate to $4.50, up from $3.50 for fiscal year 2007.
Many professional portfolio managers are looking at fiscal year 2009 and have put a minimum earnings per share at $5.25. Apple's hefty operating margins, franchise-dominating products and superb distribution systems can support a premium price-earnings multiple of 35-40 times. The stock could see a price of $200 by year-end 2008.
With the above analysis, Apple is a buy here at $123. Remember, no matter how successful an investment has been, the basic question should always be "where do we go from here?"
Georges Yared is the CIO of Yared Investment Research.
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Reader Comments (Page 1 of 1)
6-25-2007 @ 10:12AM
Sheldon L said...
GY,
Have you actually used one? Are you going to buy one immediately? Do you own the stock?
6-25-2007 @ 10:15AM
joe said...
I'm sure he owns plenty of stock in Apple. He can't stop recommending it. :) But he is right. Apple is gaining more and more marketshare in PC sales, laptop sales, now the iPhone.. They are rumored to be developing user interfaces for a variety of other manufacturers.. They have a very bright future.
6-25-2007 @ 10:52AM
jtufano said...
Well, I was wrong. He doesn't own stock in AAAPL because he recommends it on his own website and doesn't want to compete with his own members. (He sent me an email about it) Keep up to good work Georges!
6-25-2007 @ 12:50PM
Michael Schneider said...
If the iPhone is indeed a big success it would be great for Apple of course and also might hurt companies like Motorola, Sprint and Verizon. I just posted an synopsis of an item about this from Chicago Tribune at the Apple Channel (green label) at http://www.Barrelomoney.com. I have been bullish on Apple as well and so far the bulls have been right. There are some things to note though: 1. As I understand it Apple said its goal was to sell 10 million iPhones by 2008- that's different from guidance of 10 million sales but most do agree it is a pretty conservative number, 2. There are risks including the fact, as the item just posted from Tribune mentions, that the iPhone could, as the price comes down, cannibalize sales of the iPod. There is also risk in that competitors will react. There is also the cost which includes both the product cost and the cost of switching to Cingular Wireless Service-- instead of paying say $499 for the phone many potential customers would have to fork over a total of around $650- that's a lot for a phone so beyond the early adoption stage it may take awhile to know if it will be bought by a wider audience and at what price-- and Apple's 5 year exclusive agreement with AT&T will hurt them. If Apple does have a hit with the phone though and if Apple's price gets too high, it might make sense to play this by shorting or buying puts on Motorola or Sprint.
6-25-2007 @ 9:00PM
Neil Anderson said...
Apple has a bright future in car accessories as well — both built-in and add-on.
7-13-2007 @ 3:31PM
Tracy said...
I bet he does.
Troy
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