$500 bln valuation may still be only half an Apple

February 28, 2012

By Robert Cyran
The author is a Reuters Breakingviews collumnist. The opinions expressed are his own.Apple’s market capitalization is poised to ring the $500 billion bell. But even for the most valuable company in the world, that could just be a pit stop on the way to $1 trillion. A quick tour of Apple’s other eye-watering numbers explains why.

$100 billion: The company had nearly this much cash and investments on its books at the end of December. Investors give it little credit for this hoard.

$50 billion: Apple’s possible profit in the year to September. Wall Street thinks it should earn about $40 billion. Even that is 54 percent more than in the last fiscal year. But Apple has a history of beating the forecasts of pliant analysts. Over the last four quarters, earnings have been 20 percent higher than expected, at an envy-making net margin of 28 percent in the last quarter. With a new iPad anticipated as soon as next week and a new iPhone later this year, it shouldn’t surprise anyone if earnings again outdo expectations.

12.4 times: The ratio of Apple’s share price to estimated earnings in fiscal 2012. The S&P 500 trades at about 13 times forecast earnings. Yet Apple is growing far faster than the average company. If investors applied the same multiple today as they accorded the smaller, slower-growing Apple back in 2006, its value now would easily top $1 trillion.

1.3 billion: The population of China, one reason Apple’s stellar growth could continue for a while, easily stripping off any tarnish from the current criticism over labor practices at its Chinese suppliers. The company only began official sales of its iPhone in the People’s Republic in late 2009. Its gadgets have been flying off the shelves, and recent news that China Telecom will start selling the iPhone 4 will only help. Barclays thinks Apple could sell $20 billion of goods in China this year. China Mobile, the world’s biggest operator with 655 million customers, is negotiating to sell Apple’s next smartphone.

Zero: Apple’s dividend. Tim Cook, the chief executive, has hinted this could soon change – and a payout to shareholders is overdue. If the company distributed half its expected free cash flow of some $50 billion this calendar year, its dividend yield would be close to 5 percent. The S&P 500 yields about 2 percent. Revaluing the company at that yield gives another reason why a $500 billion valuation may be only half what Apple could achieve.

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