Apple, Inc.: Dividend a Hot Topic at Shareholder Meeting, Remains
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EQUITY RESEARCH Technology | U.S. IT Hardware | 27 February 2012 Stock Rating 1-OVERWEIGHT APPLE, INC. Unchanged Dividend A Hot Topic at Shareholder Sector View 2-NEUTRAL Unchanged Meeting, Remains a Potential Catalyst Price Target USD 630.00 Unchanged We continue to believe Apple’s market cap can see further gains as it extracts more profits out of the traditional PC and mobile phone industries. Reiterate 1-Overweight. Price (27-Feb-2012) USD 525.76 Potential Upside/Downside +20% Tim Cook leads his first shareholder meeting: On Thursday (2/23), Apple held its Tickers AAPL annual shareholder meeting. During the meeting CEO Tim Cook addressed questions and concerns from investors ranging from a potential dividend to the Market Cap (USD mn) 487079 way the company elects its directors. We believe the Board faces an interesting Shares Outstanding (mn) 932.37 decision over the next year regarding its growing cash hoard (now at over $97.6 Free Float (%) 99.88 bn). We continue to believe Apple has the ability to easily pay a dividend with a 52 Wk Avg Daily Volume (mn) 16.5 significant yield (2% range) and could be instated by calendar year end. Dividend Yield (%) N/A Return on Equity TTM (%) 45.58 Apple’s influence felt at Mobile World Congress as competition unveils new Current BVPS (USD) 96.60 phones: The Mobile World Congress (MWC) started today in Barcelona. While Source: FactSet Fundamentals Apple is not attending, the conference will likely focus on many themes pertinent to Apple and the potential iPhone 5. We continue to believe that Apple will ship a Price Performance Exchange-Nasdaq 52 Week range USD 528.50-310.50 new iPhone in C2H12. This iPhone should boast a new design, 4G LTE capabilities, a faster processor, a larger screen, a better camera, an improved Siri and more 600 features that could even include NFC capabilities. 500 We expect to learn more about trends in NFC at the Barclays Capital Emerging 400 Payments Forum in NYC on 3/28-3/29, hosted by our colleague, Darrin Peller. Last 300 year, Apple’s potential plans for mobile payments were a hot topic of debate along Apr- 11 Ju l - 1 1 Oct- 11 Ja n - 1 2 with the evolution of mobile payments within the smart phone sector. Please Link to Barclays Capital Live for interactive charting contact your Barclays Capital salesperson for details. AAPL: Quarterly and Annual EPS (USD) U.S. IT Hardware Ben A. Reitzes 2011 2012 2013 Change y/y 1.212.526.9517 FY Sep Actual Old New Cons Old New Cons 2012 2013 [email protected] Q1 6.43A 13.87A 13.87A 13.87A 13.92E 13.92E 13.69E 116% 0.36% BCI, New York Q2 6.40A 8.95E 8.95E 9.43E 10.51E 10.51E 10.73E 40% 17% Jennifer Thorwart Q3 7.79A 9.00E 9.00E 9.49E 10.63E 10.63E 11.07E 16% 18% 1.617.342.4181 Q4 7.05A 10.71E 10.71E 10.06E 13.40E 13.40E 11.93E 52% 25% [email protected] BCI, New York Year 27.68A 42.52E 42.52E 42.71E 48.46E 48.46E 47.47E 54% 14% P/E 19.0 12.4 10.8 Matthew Markezin-Press Source: Barclays Capital 1.212.526.6180 Consensus numbers are from Thomson Reuters [email protected] BCI, New York Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 17. Barclays Capital | Apple, Inc. COMPANY SNAPSHOT Apple Inc. IT Hardware Income statement ($mn) 2011A 2012E 2013E 2014E CAGR Revenue 108,249 155,929 183,108 213,607 25.4% Stock Rating 1-OVERWEIGHT EBITDA 35,604 56,959 67,252 77,913 29.8% Sector View 2-NEUTRAL EBIT 33,790 53,254 61,149 69,645 27.3% Price (27-Feb-2012) $525.76 Pre-tax income 34,205 53,871 62,014 70,755 27.4% Price Target $630 Net income 25,922 40,268 46,511 53,420 27.3% Ticker AAPL Reported EPS ($) $27.68 $42.52 $48.46 $54.65 25.5% Diluted shares (m) 937 947 960 978 1.4% Investment case Dividend per share ($) - - - - NA We believe Apple's valuation is attractive & that shares can continue to benefit from strong iPad & Margin and return data (%) Average iPhone demand, Mac share gains, international EBITDA margin 32.9 36.5 36.7 36.5 35.7 expansion & new innovations. We believe Apple EBIT margin 31.2 34.2 33.4 32.6 32.8 deserves a higher multiple vs. the group given our view that it is the best growth story in IT hardware Pre-tax margin 31.6 34.5 33.9 33.1 33.3 over the long term. Net margin 23.9 25.8 25.4 25.0 25.0 ROIC 47.0 43.2 45.2 47.2 45.6 ROA 27.1 27.3 24.3 24.6 25.8 Upside case $675 ROE 41.7 44.1 44.0 51.4 45.3 Apple has solid prospects for high organic growth, with open-ended potential to gain share in phones, Balance sheet and cash flow ($mn) CAGR tablets & Macs. We view Apple’s upside scenario at Tangible fixed assets 63,395 113,241 157,369 216,807 50.7% $675 based on about 14x our FY13 EPS estimate of Intangible fixed assets 2,065 2,065 2,065 2,065 0.0% $48.46. Cash and equivalents 9,815 11,434 12,633 12,527 8.5% Total assets 116,371 178,778 203,750 229,769 25.5% Short and long-term debt - - - - NA Downside case $435 Other long-term liabilities 23,572 33,955 39,873 46,515 25.4% We believe the biggest issues facing the stock Total liabilities 39,756 57,267 67,249 78,450 25.4% include the overall economy, aggressive competition Net debt/(funds) (81,570) (114,839) (160,023) (213,479) NA & very high expectations. We view Apple’s downside Shareholders' equity 76,615 106,210 105,113 102,770 10.3% scenario at $435 based on about 9x our FY13 EPS Change in working capital 5,757 4,066 4,599 4,819 -5.8% estimate of $48.46 (9.5x is Apple’s 5-yr trough multiple). Operating cash flow 37,529 53,184 63,456 73,850 25.3% Capital expenditure (4,260) (8,000) (10,000) (12,500) NA Free cash flow 33,269 45,184 53,456 61,350 22.6% Upside/downside scenarios $675 Valuation and leverage metrics Average $630 757 (29.2%) P/E (x) 19.0 12.4 10.8 9.6 13.0 (20.5%) 657 $435 EV/EBITDA (x) 13.6 8.5 7.3 6.4 9.0 557 (-16.7%) FCF yield (%) 6.8 9.1 10.6 11.9 9.6 457 Price Upside 357 Case Price/sales (x) 4.5 3.2 2.8 2.4 3.2 Downside Target 257 Case Price/BV (x) 6.4 4.7 4.8 5.0 5.2 157 Dividend yield (%) 0.00.00.00.00.03-Mar-11 24-Feb-12 Total debt/capital (%) 0.00.00.00.00.0 Source: FactSet Selected operating metrics (units in 000) CAGR Geographic Revenue Distribution FY11 Desktops 4,669 5,171 5,152 5,069 2.8% 10 Line item 1 Line item 2 Notebooks 12,066 14,805 18,264 21,955 22.1% APAC Total Macs 16,735 19,976 23,416 27,024 17.3% 8 21% 6 Americas iPods 42,620 33,029 24,697 18,737 -24.0% 35% iPhones 72,293 131,137 165,400 207,033 42.0% 4 Retail iPads 32,394 48,905 63,505 79,000 34.6% 2 EMEA 0 13% 26% 2011AJapan 2012E 2013E 2014E 5% Source: Company data, Barclays Capital Note: FY end Sept. 27 February 2012 2 Barclays Capital | Apple, Inc. The Barclays Capital Apple Monitor – 2/27/12 A quick guide to the Barclays Capital Apple Monitor: The first section discusses the stories and/or our research over the last week that we think are most important for the stock. The second section tracks iPhone activity on Flickr.com to gauge the product’s ability to move up the consumer value chain and cannibalize point & shoot cameras. The third tells readers about weekly PC and Mac sales trends. The fourth shows ship times for major products on Apple.com, which, in our opinion, provides a "common sense" idea of which products are either most popular, capacity-constrained or both. The fifth shows top seller lists from various sources. Week-to-week changes in top seller lists can indicate something about product popularity, consumer buying patterns and competition. And the sixth section tells readers about Apple’s App store, which we believe is one of the biggest differentiators for the iPhone and iPad experience — creating “stickiness” and distinction. 1. Dividend Still a Potential Catalyst Following Shareholder Meeting; Mobile World Congress to Showcase Competition, But Apple’s Presence Looms Tim Cook addresses investor inquiries at annual shareholder meeting On Thursday (2/23), Apple held its annual shareholder meeting at company headquarters in Cupertino, California.