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How do Apple's earnings quality hold up against its valuation?

Sep 11, 2018

  • Apple Inc. (AAPL) has seen its price rise to USD$220.04 in anticipation of Wednesday’s rumored release of three newly revamped iPhone models: a 5.8-inch OLED model, a 6.5-inch OLED model, and a 6.1-inch LCD model. 
  • Apple’s NTM P/E of 15.72x falls into the 90th percentile of its 2-year NTM P/E, meaning the stock is priced expensively relative to its last 2-years of valuations.
  • Consensus earnings estimates projects Apple's EPS to grow at roughly 10.64% for the next 3-5 years.
  • Apple’s 10-year annual earnings persistence of 0.88 indicates high quality earnings while a Beneish M-score of –2.60 eliminates worries of earnings manipulation (0.47% probability of manipulation).  
  • A Sloan ratio of 2.2% indicates very little of Apple’s earnings are related to accruals, further reinforcing the high-quality of Apple’s earnings. 
  • Apple’s Altman Z-score of 3.99 sits above the threshold of concern, meaning the company is unlikely to become insolvent in the near-term. 
  • The coefficient of variation in Apple’s top-line revenue is calculated as 13.6%, indicating a strong risk/return ratio with low earnings volatility. 
  • Apple has displayed exceptionally strong historical earnings performance that may support its valuation 
  • Apple is rated as ‘Top Buy’ in our U.S. Large Cap Global Top Picks and ‘Attractive’ in our U.S. Information Technology Global Top Picks. 
Name NTM P/E Earnings Persistence Beneish M-Score Sloan Ratio Altman Z-Score Coefficient of Variation (Revenue)
Apple, Inc. 15.72x 0.88 -2.60 2.20% 3.99 13.60%

Source: Capital IQ