As One Group of Observers Turns Cold(er) on Apple, A Somewhat Unexpected Group Warms Up
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Cold(er) Shoulders
Maybe it’s just me, but certain elements of the Apple commentary class (of which, technically, I’m a very very tiny denizen) have been kind of down on our favorite eternally-questioned iPhone company lately.
Even a bit more than usual.
Sorry, don’t feel like linking, but feel free to find these articles (titles listed in no particular order) on your favorite Web search engine:
“Why Apple’s Critics Are Right This Time”
“How Apple Lost its Luster in 2016”
“The iPhone Remade Apple 10 Years Ago. Now It’s Slowing Apple Down”
“Apple was absent from CES, in a worse-than-usual way”
“2016 was a hard year to be an Apple fan”
Look, so I’m not entirely misunderstood, it’s not universal Apple condemnation and doom, and it never has been in most of Apple’s iPhone Era. What do I mean?
All in all, I’d gauge commentary in general to reflect a “grudging respect” (albeit “frequent misapprehension”, let’s say) of Apple. After all, its massive net achievements since 1997 (2010+ in particular) can’t seriously be denied.
But it’s also tough to deny that Apple Skepticism isn’t a real, significant phenomenon. And sometimes, that skepticism is amusingly intense for the level of Apple strength, influence and capital reserves, as longtime Apple observer Horace Dediu has pointed out:
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Enter the “Somewhat Unexpected Group”
Typically, a certain other industry (namely Wall Street, as represented by the analysts the financial press relies on for, in particular, consensus estimates for corporate earnings and such) is historically…a little wary of Apple as well. In lockstep with much of the Apple commentary class, if you will.
Can I be clearer on that? Well, again, it’s not like analysts in good conscience can rate Apple a consensus “sell” with
- all them billions in profit ($45B+ per year, lately)
- and that attractive stock dividend of $2.28 per share (annualized) “against” a market price of just shy of $120, read: a nice dividend yield, especially for tech stocks not really known for yielding dividends at all except for certain “old fogey” tech stocks such as IBM. Given its dividend history, it’s rather likely in my humble opinion that Apple increases the dividend yet again later this year.
So that’s why Apple’s a consensus “Buy”. Though not a consensus Strong Buy (yes, this is an actual analyst ranking above Buy) — and therein lies the nuance.
Essentially, while it clearly understands that Apple is a “solid” company, Wall Street has, more than a couple of times, projected/guessed low on Apple financial results. By more than a little.
Except, that is, when Apple’s had slowing or retrograde growth, in which cases Wall Street’s skepticism/conservatism tended to win out (though not always) over the inherently-more-bullish amateurs. (Links courtesy Philip Elmer-Dewitt’s Apple 2.0 and 3.0 blogs)
If Wall Street analysts influence opinion on Apple, Inc. (and no question, they do), then there’s the investors, institutional and individual, who literally price Apple Inc. via buying and selling, occasionally in Carl Icahn-sized mega-trades.
And it’s no big secret that Apple, on the old-yet-not-entirely-useless price/earnings multiple metric basis, is significantly undervalued (14.47 as of Jan. 10, 2017)
vs. the S&P 500 (about 25 as of Jan. 6, 2017, per WSJ) and NASDAQ 100 (about 24.6 as of same date, also WSJ) market multiples. That’s not something I see changing anytime soon.
So you might be a bit surprised to find out about what counts for AAPL rays of sunshine peeking through the fact-of-life Wall Street gloom.
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Wall Street? Apple Optimism? Actually…Yes
First, here’s Exhibit A, which you might be more familiar with (via Yahoo! Finance, their data source is here).
Though Apple had a down year, with revenue declining around 7.7% from $233.72B to $215.64B, Wall Street analysts (45 of them, to be exact) see that as a transitory situation, at least for the in-progress fiscal 2017. As of today, they see revenue growth recovering to $228.28B, up 5.9% from the prior year. ($675B or so in revenues for a consumer tech company in the space of three years? Eh, seems fair, I guess.)
Yes, $228.28B isn’t $233.72B, and I’ve mentioned before, it’s fully legitimate to ask, expect, a publicly-traded company as outwardly confident in its business as Apple to exceed its prior record sooner than later.
Well, as it so happens? This is exactly Wall Street’s thinking.
The proof? In two parts.
Part One: When I last posted on Apple earnings (Oct. 22, 2016, more or less), the FY 2017 Apple analyst consensus stood at $225.66B. Since then:
- FQ4 2016 results,
- the FQ1 2017 guide over expectations,
- iPhone 7 + anticipated “iPhone 8" prospects,
- presumptive iMac updates and other refreshes or Mac redesigns in CY 2017,
- the encouraging apparent demand for Watch Series 2,
- new iPads surely to come in CY 2017,
- and Apple’s Services business have all helped analysts collectively raise that old FY17 revenue projection by a whole 1.16 percent, which would sound a touch more impressive if expressed as $2.6 billion.
Part Two: Time to bring out Exhibit B. Here’s the rest of the analyst community’s expectations for Apple Inc., extending to FY 2018:
While the commentary class is rather down on Apple, the average opinion of 38 professional analysts ostensibly surveyed by Thomson Reuters is that FY 2018’s revenue number will come in at $243.4B, or about $9.7B higher than that FY 2015 all-time record. In other words, their current consensus is a genuine return to growth.
It’s not just revenue that’s looking decent in analysts’ eyes, by the way. To wrap up (the regularly scheduled portion of this blog post, anyway), we look to, well, the earnings portion of Wall Street analysts’ earnings estimates, expressed as earnings per share (EPS):
Apple turned in diluted EPS of $8.35 in FY 2016, per its annual report. Which the analyst consensus projects to recover to $8.97 in FY 2017, and then an all-time-high of $10.09 in FY 2018, compared to the current EPS record of $9.22 in FY 2015. Even factoring in buybacks (more on that in the upcoming “bonus supplement”, if you dare), that includes actual net income growth (year-on-year) in the consensus estimate over the next little while.
Record revenues and EPS just two years past the disappointment of FY 2016? Seems like Wall Street, albeit quietly, is whistling a decidedly upbeat tune compared to much of the Apple commentary class.
We’ll know who’s more correct just a couple of iPhone and Watch generations from now.
