Wednesday, January 27, 2016

Is Apple really as cheap as it looks?

2:26:00 PM By

"Apple is cheap" has long been a Wall Street cliché. 
An Apple logo is reflected on a wet ground outside an Apple Store.It's now become an increasingly desperate plea of shareholders unable to understand why the most profitable company in history seems valued by the stock market as if it's a mediocre business. 
With a decline of nearly 5 percent, to just above $95 Wednesday following a mixed earnings report and sober guidance on the current quarter, Apple shares are off by more than 28 percent in the past six months, and are trading below their 2012 high on a split-adjusted basis. 
At this level, the stock is indeed cheap by most standard measures. It trades near 10 times forecast earnings per share for the coming four quarters, compared to 15 times for the S&P 500. Stripping out Apple's massive $153 billion trove of net cash (that is, its cash holdings minus its debt), the business is valued around 7.5 times expected 2016 profits. 
In fact, Apple for years has appeared chronically cheap. The stock's forward P/E has been below the broad market multiple continuously since 2012, reaching a low just beneath 9 in April 2013. 
It is perhaps the leading example of the distinction between a great company and a great stock. The depressed multiple has challenged Wall Street's typical assumptions of how leading companies should be valued. 
Morgan Stanley analyst Katy Huberty has a $135 price target for Apple, roughly in line with the average sell-side target of $136.43, according to Factset. She arrives at this target by placing a multiple of 15 on her forecast of $9 per share in earnings for the current fiscal year, ending in September. It also computes to 12 times earnings, excluding Apple's net cash. 

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