Apple Inc. (NASDAQ:AAPL) delivered a very well received earnings report on Tuesday, July 23, after the markets closed. After disclosing higher than expected earnings, and much higher levels of iPhone sales in the quarter, the company’s shares rose in value more than 4 percent. Brian J. White of Topeka Capital markets thinks the company can go a whole lot further than that.
Citing the company’s good performance in the April-June quarter of 2013, and the company’s robust guidance for the last quarter of its financial year, which is the September quarter for the Cupertino firm, Mr. White sees the company’s fortunes vastly improving in 2014.
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The fortunes of the company’s shareholders should, according to Mr. White, also improve, with Apple Inc. (NASDAQ:AAPL) shares due to more than double in the next twelve months according to his analysis of the company.
Apple valuation too high?
In the next earnings report from Apple Inc. (NASDAQ:AAPL) Topeka’s White expects the company to bring in $33.88 billion in revenue, while the company itself expects between $34 and $37 billion. Apple guidance has become more realistic, and the Topeka Capital Markets reports is quite strange in the contrast between the conservative nature of its earnings estimates and the almost opulent nature of its price target.
The reason that Mr. White comes out with a much higher valuation for Apple Inc. (NASDAQ:AAPL) even with reasonably conservative estimates, is that he uses a different method to value the company. Topeka values the company at sixteen times adjusted 2014 earnings, and adds the value of the company’s cash.
The problem with that valuation is that at the moment, Apple Inc. (NASDAQ:AAPL) shares are trading at 10 times 2013 earnings, and probably less on 2014, depending on what estimates you use. A multiplier of 16 isn’t likely the way the market will value the company in twelve months time. Even if it does, the addition of more than $150 billion in cash on top of that seems ridiculous.
Apple on the road to $888?
It is unlikely that Apple Inc. (NASDAQ:AAPL) shares will hit $888 in twelve months time, but Topeka doesn’t necessarily say they will, just that they’ll be worth that figure. Ephemeral notions of worth do little to help investors’ returns, but it is important to have a look at different valuations in order to get a better picture of the company.
Apple Inc. (NASDAQ:AAPL) may well be on the road to a $888 share price, but it’s a couple of new product lines off. If we see those, the sky may be the limit.