12-Month Net Income Growth: 70%
12-Month Stock Performance: 55%
3-Year Annualized Sales Growth: 40%
3-Year Annualized Net Income Growth: 59%
3-Year Annualized Stock Performance: 23%
Needless to say, Apple's growth record and stock performance are impressive, especially when considering that the company's products are targeted at consumers. Consumer spending has been a drag on the broader U.S. economy since 2008, when recession struck, and remains at below-trend levels due to 9.8% unemployment. Also, Apple currently carries $51 billion of cash and investments, and no debt, so its balance sheet is best-in-class. That cash coffer provides tremendous opportunity for acquisitions, share buybacks or sizable dividends. Analysts are optimistic about Apple's trajectory in 2011. Analysts' median 12-month price target, at $384.16, suggests an impending gain of 15%. Goldman is among Apple's biggest bulls, offering the second-highest price target, at $430, implying a rise of 29% in the next year. Piper Jaffray offers the loftiest target, at $438, consistent with a 31% gain. Goldman's latest missive on Apple, at 59 pages, touches upon all near-term catalysts for the Cupertino, Calif.-based company and explains why Wall Street, in Goldman's view, is underestimating a fundamental improvement in 2011. According to Goldman, the primary concerns weighing on investors are recent gross margin erosion and less-than-bullish guidance from management. But the bank believes that the spread deterioration is not only normal, but that "margins have already bottomed." It has an aggressive forecast for sales of the iPad, Apple's tablet computer, predicting 37 million units will be shipped in 2011.
Book Value Multiple: 6.4 (30% Industry Premium)
Sales Multiple: 4.7 (40% Industry Premium)
Cash Flow Multiple: 16 (19% Industry Premium)
PEG Ratio: 0.8 (20% Growth Discount)
The likelihood of a major acquisition remains remote, despite an elevated $27.58 of cash per share. Goldman forecasts $4 billion of 2011 capital expenditure, with $600 million going towards expanding the retail store base by 40 to 50 locations. The bank also expects additional investment to retool products and expand Apple's manufacturing facilities. Apple has a massive market capitalization of $306 billion, in part because it finances exclusively with equity. That valuation dwarfs the market value of Wal-Mart ( WMT), the world's largest company based on sales, at $194 billion. Traditionally, the larger a company gets, the slower its growth becomes. Many investors are avoiding Apple specifically for this reason. However, in an increasingly global environment, where growth is driven by emerging markets, the environment for U.S. multi-nationals has, arguably, never been more favorable. Goldman's projection of Apple's terminal growth rate, the pace it expects the company to expand at in perpetuity, is 3%. If one assumes fertile global conditions and continuation of a telecom and tech boom in emerging and frontier markets, that rate could justifiably be 4% or 5%. Boosting terminal growth renders Apple's stock cheaper and justifies higher targets.