Apple Is Worth $1.2 Trillion, Until It Isn't

Apps & Software

Published: February 12, 2015 6:38 am

Apple Inc. (NASDAQ: AAPL) is worth over $1.2 trillion, according to Carl Icahn. The flaw with the estimate rests with his valuation measure, based on growth, tax rates and a future earnings forecast. Icahn’s forecast rests on future sales of products, at least one of which Apple has not released. So, the value guess is not much better than any other.

Icahn’s comments about products go this far:

It is now plainly obvious to us that there will be no stopping Apple’s peerless innovation track record and best-in-class ecosystem of services, software, and hardware, and that Apple will continue dominating the premium smartphone market by continuing to take premium market share from Google’s Android operating system (and Android-device manufacturers) while at the same time maintaining or growing average selling prices and gross margins. We look forward to the introduction of the Apple Watch in April, as well as the launch of other new products in new categories

His forecasts, which are hard to follow, appear in a letter he wrote to Apple management last October.

Icahn’s new model puts the earnings forecast for Apple’s fiscal year at $9.70 per share. This drives a share price of $216.31. The number assumes, among other things, that Apple releases a TV product. What about iPhone sales and whether Apple releases an iPhone 7? What if global tablet sales tumble and iPad sales tumble with them. Or, what if a new Samsung Galaxy gains a large part of the market as it did two years ago? Or if a new Apple product has a major flaw. Then Apple would be worth something less than $216.31, and its market value less than a $1 trillion. Apple management has said rapid sales growth will depend a great deal on China.

One reason that the advance in Apple’s share price paused then dropped sharply to under $65 in January 2013 was a modest misstep. Expectations for Apple’s success have been and continue to be so high that only a tiny push will send them tumbling.

ALSO READ: Apple Value Now Larger Than Combined GE, Wal-Mart, GM, McDonald’s

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