Last week Apple absolutely crushed estimates and handed in yet another stellar quarter. After the whole world had turned bearish and the stock was down more than 80 points off its all-time high, the folks down at Cupertino just did what they do best. Where’s the growth coming from this time? China. But more on that later. In October, Apple will be introducing the iPhone 5, the first full redesign of the phone since 2010. By all indications, it will have a bigger screen (4″), a better camera, and a new sexy form factor. In my previous post, you can see that right before the stock started tanking, a bunch of analytst came out with $1t calls for the company. This brought the “bubble-sayers” out in droves, and even after this last quarter, they lurk in the shadows like vultures waiting for Apple to trip so they can shout “Ha! Told you so!” But hey, they may be right. Without the guidance of the late Steve Jobs, you would be a fool to think things will just keep on running smoothly without a hitch. This is the point where I’m going to tell you why they’re wrong. At least for the next year or so.
The last projects Jobs worked on before his death we’re the iPhone 5 (which was ready to be launched last October, but for a number of reasons was scrapped in favor of the 4S (which was a brilliant business move)), and the iTV. Let’s talk about the iPhone 5 as this will be the reason Apple becomes a $1t company. The iPhone 5 will be gorgeous, cause envy in those who don’t have it, and be the best selling phone of all-time. There will be lines around the block to get one, and every kid will ask for one for Christmas. They will likely sell 20m here in the states alone, but check this out. The real story is China. China Mobile (the largest phone company on the planet) has 100m high-value users ripe for iPhone take-up. Apple doesn’t have a deal with them yet, but they will by Q4. Let’s say 25% buy an iPhone 5 in Q4. We’re already at 45m phones. Say they sell another 15m to every other country, and we’re at 60m phones. This may sound crazy, but I think I’m being conservative. They’ll probably sell 65-70m, but I’ll use 60m for my model. They should have slightly lower margins due to the phone having a new form factor and therefore being more expensive to build, so I’m taking that into account. That means if growth in all their other products (iPod, iPad, Mac ect….) stays steady, they should make $20-22 per share. That will set-up a $65 EPS in 2013. Which, at todays multiple of 14.7X, would put shares around $955. Throw in the anticipation of the iTV, and the frothiness and hysteria over everything Apple, and I think we easily see $1000 by early Feb. Buy Apple.