“[It’s] obviously a terrible thing for Steve personally and market reaction won’t be kind either,” Mr. Marshall said in a research note to clients obtained by The Mac Observer. “I don’t the stock breaks $300 level due to the following…real earnings power in CY11 is ~$22-23 and by applying a discounted multiple of ~12x and adding back net cash per share of ~$50…that implies a floor of around $300 in my view.”
To break that down a bit, Mr. Marshall believes that Apple’s business should produce between $22 and $23 in earnings per share over the course of calendar 2011. A 12x multiplier on those earnings is a fairly standard multiplier for tech companies in the current market, but one that is lower than where Apple is currently valued, as the markets have put great stock (pun intended) in Apple’s future, based in part on the contributions of Steve Jobs.
Apple’s enormous cash holdings of about $49 billion (as of the last quarter) represent about $50 per share, and gets added on top of the earnings multipliers used by analysts to set their price targets.
The reasoning that Mr. Marshall is laying out for investors is that with the standard multiplier and all that cash, the company is still worth at least $300 a share, and that the markets won’t push the stock below that level.
U.S. stock markets are closed Monday in observance of Martin Luther King Day, a U.S. federal holiday. In Europe, shares in AAPL traded lower in Frankfurt, ending the day 6.2% lower. Trading in AAPL will resume in the States on Tuesday morning, and Apple reports its December quarter results Tuesday afternoon, after the markets close.
There will no doubt be many and more questions about Mr. Jobs from analysts during the conference call that will take place Tuesday, including questions about a succession plan for the CEO spot. Apple has not made its succession plans public, though investors and analysts alike have asked the company to do so.
*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.