Edible Apple

When it comes to predicting Apple’s quarterly financial reports, resourceful Apple finance guru Andy Zaky consistently bests everybody on Wall Street. In a recent piece contributed to CNN, Zaky writes that Apple’s stock valuation may very well hit $400 a share by early 2012 at the latest.

If there is one thing that readers should take away from this article it’s that you should never fight Wall Street’s valuation metrics. Instead of relying on some alternative way to value the company to determine future price targets, embrace the market’s valuation but beat it on the earnings front. While the market might continue to give Apple an 18 to 20 trailing P/E ratio well into the future despite Apple’s enormous cash holdings and robust 50-70% growth rate, the one thing that is not determined by the market is the earnings variable of the P/E ratio.

For example, let’s suppose that Apple continues to trade at a 19 to 20 trailing P/E come October 2011. Right now Wall Street analysts are modeling for Apple to earn roughly $17.50 in EPS. At that earnings level, Apple would be trading between $332 and $350, assuming a 19 or 20 multiple. Yet, nearly every independent analyst knows Apple will probably earn about $20 in EPS in 2011.

This is where investors can forecast a more realistic and achievable price target. Based on $20 in EPS for fiscal 2011, Apple should be trading between $380 and $400 in late 2011 or early 2012 assuming a multiple of 20. This price target beats the Street by nearly $70 and presents a conservative, simple, and straightforward analysis of Apple’s valuation.