July 13, 2005



October 14, 2005

Apple Computer, Inc. (AAPL: Click here for Investor Relations)

Sector: Technology

Industry: Computers (Manufacturers)

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Price: $53.93

52 Week Range: $55.35 – 18.83

FLIP Price Target: $53.03 (Click for Options)

Financial Data (Click Here for Key Statistics)

Fiscal Year: Sep

Current EPS Est.: $1.43

P/E: 42.51x

Revenue: $13.969Bln

Next Year EPS Est.: $1.69

P/E: 30.18x

Revenue: $16.810Bln

LT Growth Rate: 18.0%

Peg Ratio: 1.67x

Dividend Rate: N/A

Price / Book: 6.28x

Beta: 1.30x

Market Cap: $42.32Bln

Company Description

(Click Here for Expanded Description)

Apple Computer, Inc. engages in the design, manufacture, and marketing of personal computers and related software, services, peripherals, and networking solutions. It also designs, develops, and markets a line of portable digital music players along with related accessories and services, including the online distribution of third-party music and audio books. The company's products and services include the Macintosh line of desktop and notebook computers; the Power Mac line of desktop personal computers; the iPod digital music player; the Xserve server; Xserve RAID storage products, a portfolio of consumer and professional software applications; the Mac OS X operating system; the online iTunes Music Store, a portfolio of peripherals that support the Macintosh and iPod product lines

Oct-05 Quarter Highlights:

(Click Here for: Most Quarterly Report)

Apple® today announced financial results for its fiscal 2005 fourth quarter ended September 24, 2005, reporting the highest revenue and earnings in the Company’s history.

Apple posted revenue of $3.68 billion (which was only slightly below Thomson’s Estimate of $3.71 billion) and a net quarterly profit of $430 million, or $.50 per diluted share (which beat Thomson’s Estimate by $.13 per share).

These results compare to revenue of $2.35 billion and a net profit of $106 million, or $.13 per diluted share, in the year-ago quarter. Gross margin was 28.1 percent, up from 27.0 percent in the year-ago quarter. International sales accounted for 40 percent of the quarter’s revenue.

Earnings per share benefited by $.12 from several tax items related to net deferred tax assets, tax reserves, and a revision to the full year tax rate estimated in prior quarters.

Apple shipped 1,236,000 Macintosh® units and 6,451,000 iPods during the quarter, representing 48 percent growth in Macs and 220 percent growth in iPods over the year-ago quarter.

For fiscal 2005, the Company generated revenue of $13.93 billion (which was only slightly below Thomson’s Estimate of $13.969 billion) and a net profit of $1.335 billion, reflecting annual growth of 68 percent and 384 percent, respectively, and representing the highest annual revenue and net profit in the Company’s history.

Investment Risks:

With the advent of increased pricing pressure, iPod competition new players in the portable audio market, Apple could shed some of its market dominance. The Intel transition carries risk of buying deferrals, despite the fact that management has not seen disruption to-date and will probably take until the beginning of Year 2008 to take full effect.

Also to note, if Microsoft launches a more comprehensive consumer electronics based operating system that achieves strong market penetration, Apple could be at risk.

While Apple execution has surpassed the overall market-to-date, any misstep could meaningfully reduce the brand image and related “halo-effect” for Apple.

Apple’s growth rates appear to be peaking and are likely to slow which can hurt a stock’s P/E multiple.

The ultimate size of the music/MP3 player market is unknown along with increasing competition from multiple vendors.

Historical inability to capture a wider customer base and grow market share without a more compelling product offering to attract new users and penetrate the Wintel world, although “halo” effect appears to be playing out.

Investment Outlook:

(Click Here for Consensus Estimates)

Despite Apple’s 31% run-up since 2nd Quarter 2005, nearing it 52-week high, poor valuation and recent downgrades from SG Cowen, Apple is still a Buy (Click Here for Analyst Recommendations). Apple is also at the upper-bottom of the FLI Partners Fund Universe. Apple’s soft guidance raises know issues of concern and predicated on Wall Street Analysts being overly bullish on Apple and overshooting the #’s. Apple Computer’s weekly Investor’s Business daily Chart is excellent. The timeliness rating is an “A.” The company’s Earnings Per Share rank is 98, while its Composite Rank is a 98 and Relative Strength Price Ranking is a 97. Zack’s Rated it a “1”and Value Line Rated it a “1”, MSN Money Central Rated PEP a “6” out of 10, and its S&P Quotient was in the 93rd percentile of all stocks, in which a report was written.

Apple Computer’s earnings should be strong for the next 4 quarters, in which Thompson’s expects $.48 per share (37% increase Y-O-Y) for Dec-05, $.38 per share (12% increase Y-O-Y) for Mar-06, $.40 per share (7% increase Y-O-Y) for Jun-06 and $.44 per share (19% increase Y-O-Y) for Sep-06.

Annual Earnings for the next year should be very strong followed by two more solid years. Apple Computer’s earnings for Year 2005 are expected to be $1.43 per share (281% increase Y-O-Y); Year 2006 is expected to be $1.69 per share (18% increase Y-O-Y) and for Year 2007 is expected to be $2.01 per share (19% increase Y-O-Y).

Apple Computer’s revenue should be strong for the next 4 quarters in which, Thompson’s expects $4.481 billion (29% increase Y-O-Y for Dec-05, $3.878 billion (20% increase Y-O-Y) for Mar-06, $4.037 billion (13% increase Y-O-Y) for Jun-06 and $4,423.79 (19% increase Y-O-Y) for Sep-06.

Annual Revenue for the next 3 years should be steady, as well. Apple Computer’s revenue for Year 2005 is expected to be $13.970 billion (45% increase Y-O-Y); Year 2006 is expected to be $16.810 billion (22% increase Y-O-Y) and for Year 2007 is expected to be $19.709 billion (18% increase Y-O-Y).

|Apple's Thomson Earnings Estimates |

|PERIOD |DATE |#ESTS |MEAN |% Change Y-O-Y|

|ANN |Sep-05 |25 |1.43 |281.00% |

|ANN |Sep-06 |25 |1.69 |18.00% |

|ANN |Sep-07 |9 |2.01 |19.00% |

|LTG | |10 |21.00 | |

|QTR |Dec-05 |23 |0.44 |37.00% |

|QTR |Mar-06 |22 |0.35 |12.00% |

|QTR |Jun-06 |22 |0.35 |7.00% |

|OTR |Sep-06 |21 |0.44 |19.00% |

|Apple's Thomson Sales Estimates |

|PERIOD |DATE |#ESTS |MEAN |% Change Y-O-Y |

|ANN |Sep-05 |22 |13,969.88 |45.00% |

|ANN |Sep-06 |22 |16,810.10 |22.00% |

|ANN |Sep-07 |10 |19,708.69 |18.00% |

|LTG | |1 |7.00 | |

|QTR |Dec-05 |22 |4,481.72 |29.00% |

|QTR |Mar-06 |22 |3,878.67 |20.00% |

|QTR |Jun-06 |22 |4,037.46 |13.00% |

|OTR |Sep-06 |21 |4.423.79 |19.00% |

Apple Computer Inc.'s Corporate Governance Quotient (CGQ®) as of 3-Oct-05 is better than 28% of S&P 500 companies and 83.7% of Technology Hardware & Equipment companies.

|Brokerage House/Rating Agency |Recommendation/ Sentiment |

|FLI Partners Fund |10.4% (Undervalued) |

|Morgan Stanley |Overweight |

|Merrill Lynch |Neutral |

|JP Morgan |Overweight |

|Credit Suisse FB |Outperform |

|Bear Stearns |Outperform |

|SG Cowen & Co. |Neutral |

|Thomson |Weak Buy |

|Standard & Poor’s |Hold |

|Valueline |Buy |

|MSN Money Central |Hold |

|Zacks |Buy |

Sources:

Valueline, Zach’s, MSN Money Central, Yahoo Finance, Multex Investor, Reuters, Standard & Poor’s, Thompson’s, Investor’s Business Daily, Apple Computer, Morgan Stanley, Merrill Lynch, JP Morgan, Credit Suisse First Boston, Bear Stearns and SG Cowen, Inc. (Click Here for Additional Research Reports).

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First Long Island Investors, LLC

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