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The company ended the quarter with $1.97 billion in cash net of debt, or about $11.36 per share. With a new consumer Powerbook and other goodies in the pipeline, Apple could still do perhaps $2 a share, fully-taxed at 35%,for the year. Net of cash, it's trading at less than 12 times that FY99 estimate.
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"Can anyone explain this part to this dumb ol'e hillbilly? I have a sneaking suspicion that it's pivotal."
The method Motley Fool uses to determine valuation for a stock is slightly more sophisticated (and probably more accurate way of looking at things) than the typical PE ratio.
Their method is still based on Price/Earnings but it makes adjustments to both Price and Earnings before dividing one by the other.
For Earnings, MF tries to determine what the real earnings would have been if a company did not benefit from the lower tax rate. The current consensus estimate of $2.70 EPS for fiscal 1999 is based on tax assumption of around 10-15%. If Apple were to be taxed at the 35% rate earnings per share would be closer to $2.
For Price, they are factoring in the high (net of debt) cash per share. So while the stock is at around $35.50 per share right now, because each share you purchase has a $11.36 cash value associated with it, the premium you pay is only about $24 per share.
Combining these two adjustments, we have a PE of $24/$2 or 12X of FY 99 earnings.
By the way Apple's current net of debt cash is $2,922 mil (cash) minus $955 mil (long term debt) which is $1.967 bil. When the convertible notes are redeemed on June 1st, $661 million gets wiped off of Apple's long term debt. As a result, Apple's cash net of debt after this quarter will jump by at least $661 million plus $100+ mil in expected earnings. Apple's cash (net of debt) per share will then jump by over $4 to around $15.8.
Eric |
