Forward-looking PE's
Using Zacks, I compared forward-looking (fiscal year 1999) PE's for four major computer makers, including AAPL
Name EPS Recent Price PE
CPQ $1.75 $36 20.57
GTW $2.80 $60 21.42
DELL $2.59 $115 44.40
AAPL $2.02 $41 20.29
DELL is clearly in a league of its own, and probably should be given its astonishing top-line and bottom-line growth.
The other three have PE's that fall amazingly in line with each other.
If we used AAPL's price from just yesterday ($43), then suddenly we have a PE of 21.28--right in line with GTW's 21.42. In other words, CPQ's, GTW's, and AAPL's PE's are statistically identical.
This statistic initially flies in the face of the concept of AAPL being an undervalued stock. I, however, take this to be a good thing. What is shows is that Wall Street is no longer taking a disproportionately negative viewpoint of AAPL.
We've now established that Wall Street is willing to value AAPL stock in line with other PC manufacturers. Good. Now we come to the real value of the stock.
Analysts, on the other hand, in their usual slow way, are trailing indicators. They still have a bias against AAPL, and it shows with the EPS forecast (as well as the huge number of holds still on AAPL).
The prediction of $2.02 FY99 earnings is absurd. AAPL had $.50 OPERATING earnings in the previous quarter. Therefore, this projection literally claims that AAPL's earnings will be FLAT sequentially for the next FIVE QUARTERS. Um, yeah. Sure. Okay, Mr. Analyst.
If we assume a mere nickel advance per quarter (VERY conservative, I think) over the next five quarters, then we get:
$.55 (Q4)
$.60 (ironically .01 below current analysts' estimates for Q1)
$.65
$.70
$.75
We suddenly have $2.70 FY99 earnings. Keeping the PE the same, that means AAPL should be fairly valued in the $54-$57 range! Remember, the valuation is based on forward-looking PE's. Therefore, $54-$57 should be AAPL's value in 1998, not 1999. We must analyze 2000 earnings to look at AAPL's value a year from now.
So what does all this mean? When earnings come out over the next two quarters and show top-line as well as bottom-line growth, analysts will be forced to adjust their FY99 projections dramatically, resulting in either, a) very low forward PE (inconsistent with Wall Street's current willingness to give AAPL a competitive PE)
-or-
b) a significant increase in stock price to the level resembling $54-$57 over the next 6-7 months!
Andrew |
