by Steve McDonald, Investment U Contributing Editor
Monday, December 19th, 2011
The street may be underestimating Apple’s (Nasdaq: AAPL) 2012 “iProducts” sales by as much as 40 percent.
Apple’s numbers have been amazing so far, but if the new numbers are correct, the stock price is going to explode.
Apple is shaping up to be next year’s big story, again, and our aversion to what appears to be pricey stocks will have those who ignore this one watching the money train leave the station – again.
Most stock buyers are in love with the $7 tech idea that can return 40 or 50 percent in a heartbeat. Stocks that sell for $380 per share just aren’t on most tech investors’ Christmas lists. It cuts against our grain to pay that much for a single share of stock.
The underlying, unspoken belief is; how much upside can be left in this one? The new numbers say a lot!
A Growing Wave of Demand
Wake up tech buyers, the iPod, iPad and iPhone revolution is in full swing, and what we have seen so far is just the leading edge of a growing wave of demand.
A recent survey of buying trends of iProducts for Morgan Stanley by AlphaWise was full of upside surprises. Katy Huberty of MS said the survey reported demand numbers that blew away the street and MS’s estimates.
Huberty reported that Morgan Stanley’s estimate of 2012 iPhone sales is 42-percent below what the survey found. Forty-two percent low! Sales this quarter, which have been described as brisk, are actually 20-percent higher than what she’s been estimating, and 30-percent higher than what the street is modeling.
Even more stunning, demand is accelerating.
The survey also reported that consumers expect to buy more iPhones in Q1 of 2012 than in the Q4 of 2011. Even allowing for a 10-percent error factor in the survey, worldwide Apple could move 41 million phones next quarter. Morgan Stanley was only estimating 30 million.
That’s a 36-percent increase. But it gets better.
According to Huberty, demand for iPads is showing no sign of weakening.
The survey reported only eight percent of consumers own a tablet and 27 percent plan to buy one. Even if AAPL gives up the expected market share to the Amazon’s (Nasdaq: AMZN) Kindle Fire, they could still sell 81 million iPads in 2012. Morgan Stanley had only estimated about 52 million worldwide.
If these numbers seem too good to be true, you aren’t alone. But when you look at the earnings estimates, this whole scenario seems very plausible.
The high EPS estimates for 2012 are at about $46 per share up from $34.76 for 2011. At the current P/E of about 13.8, that translates into a share price of $638.
Let’s back down towards a more realistic number, or more believable might be more accurate, and use the consensus estimate of an EPS around $38 for 2012. That still puts Apple in the range of $539 per share.
If Apple only hits the consensus, we could be looking at a 41-percent gain. If this survey is even close, $600 per share is a gimme.
Becoming a Believer
In the past few months, there have been analysts who have called for $450 and $500 per share for AAPL. In our current economic environment and with the EU situation, and the fear it has pumped into our market, I had been skeptical…
I am now a believer.
If the street and Morgan Stanley’s estimates are only off by half as much as the survey reported, this could be gigantic.
The next time you’re out and about, take a second and count how many people in your immediate area are texting or talking on their iPhones. It’s scary.
This is an addiction that’s totally out of control, and Apple stands to be the big, big winner. Their marketing and advertising is as good as I have ever seen, and the average 20- or 30-something can’t get enough.
We’re witnessing the most effective application of a new technology since the advent of the automobile. This isn’t just another new gadget; they’re literally rewriting the rules for the whole data/digital industry.
You don’t want to miss this one.