Apple's Holiday Sales To Be Monstrous

Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As analysts focus on Apple's (NASDAQ: AAPL) Q4 results, the iEmpire's even more important holiday quarter awaits. With the iPhone 5 already in stores, and the iPad Mini reportedly on its way, investors should expect massive results from Apple in Q1, for 4 key reasons.

First, there is already evidence of incredibly strong demand for the iPhone 5. According to an Apple press release, it has "shattered the previous record held by iPhone 4S." Plus, Apple sold 5 million iPhone 5's during the launch weekend, versus sales of 4 million for the iPhone 4S--that's a 25% increase.

Second, the iPhone 4S rollout pales in comparison to the iPhone 5 rollout.

The new model was initially available in more countries:

  • iPhone 4S launch availability:  US, Australia, Canada, France, Germany, Japan and the UK
  • iPhone 5 launch availability: US, Australia, Canada, France, Germany, Hong Kong, Japan, Singapore and the UK
And it rolled out more quickly to 22 additional countries:
  • iPhone 4S: Over two weeks after the initial launch
  • iPhone 5: Just 7 days after initial launch

Third, there is a huge trend toward pre-orders for the iPhone 5. 

<img src="/media/images/user_13783/iphone-4s-pre-orders-vs-iphone-5-pre-orders_large.png" />

More than 12 days after launch, iPhone 5 shipping estimates remain at a whopping three to four weeks. This trend toward pre-orders and delayed deliveries will cause many Q4 orders to be delivered in Q1.

Fourth and finally, the iPhone 4S was only available for two-and-a-half months during the holiday quarter. The iPhone 5, on the other hand, will be available for all three months of the holiday quarter.

The holiday quarter will make Apple's stock look cheap
Based on the above assumptions regarding the iPhone 5, and a rumored iPad mini launch in October, it's very realistic to assume a 50% increase net income in Q1 2012 versus Q1 2011.

With EPS of $13.87 billion in Q1 2011, a 50% increase would result in Apple EPS of $20.80 per share. If my estimate for Q4 EPS is in the ballpark, Apple will earn about $12 per share in Q4. This would result in TTM EPS of about $53 per share.

If Apple's stock price doesn't appreciate from today's price of $660, Apple would be trading at a P/E of about 12 after Q1 earnings are announced. And by then we'll be talking about iPad refreshes and an iPhone 5 launch in China, Apple's greatest geographic opportunity.

Compare an estimated P/E of 12 for Apple after Q1 earnings with the P/Es of some slow-growth, dividend stocks:

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>P/E Multiple</strong></td> </tr> <tr> <td><strong>McDonalds</strong> <span class="ticker" data-id="204400">(NYSE: <a href="">MCD</a>)</span></td> <td>17.08</td> </tr> <tr> <td><strong>Waste Management</strong> <span class="ticker" data-id="206072">(NYSE: <a href="">WM</a>)</span></td> <td>16.06</td> </tr> <tr> <td><strong>Johnson & Johnson</strong> <span class="ticker" data-id="204142">(NYSE: <a href="">JNJ</a>)</span></td> <td>21.94</td> </tr> <tr> <td><strong>Union Pacific Railroad</strong> <span class="ticker" data-id="205900">(NYSE: <a href="">UNP</a>)</span> </td> <td>15.4</td> </tr> </tbody> </table>

Don't trust earnings multiples? Do my forecasts make you nervous? Fine. Let's take forecasting out of the picture and use Apple's current free cash flow yield (the higher, the better) compared to these other companies.

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>FCF Yield</strong></td> </tr> <tr> <td>Apple</td> <td>6.7%</td> </tr> <tr> <td>McDonalds</td> <td>4.5%</td> </tr> <tr> <td>Waste Management</td> <td>7.3%</td> </tr> <tr> <td>Johnson & Johnson</td> <td>6.6%</td> </tr> <tr> <td>Union Pacific Railroad</td> <td>4%</td> </tr> </tbody> </table>

The bottom line
Apple, with monstrous catalysts, massive profit margins, and cult-like fans, currently trades at a more conservative valuation than McDonalds, Johnson & Johnson, and Union Pacific Railroad by measure of FCF yield. I smell opportunity.

DanielSparks owns shares of Apple. The Motley Fool owns shares of Apple, Johnson & Johnson, McDonald's, and Waste Management. Motley Fool newsletter services recommend Apple, Johnson & Johnson, McDonald's, and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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