Apple Inc. (NASDAQ:AAPL) Isn’t As Cheap As Wall Street Claims

Apple Inc. (NASDAQ:AAPL) is one of the most popular stocks among Wall Street analysts. According to Thomson/First Call 48 of the 58 analysts covering the stock have a buy or strong buy rating on the stock. Apple’s one year median price target of $750 is also 47% higher than its current price. Analysts also expect that Apple Inc. (NASDAQ:AAPL) will make $49 in its current fiscal year ending September 2013 and $57 in FY2014. Even the most bearish analyst thinks AAPL will earn $41.75 in FY2013. So, according to Wall Street Apple’s forward price-earnings ratio is at most 12.

Apple also currently has $128 per share in cash and investments on its balance sheet. After backing this out, Apple trades at a forward PE ratio of 9.5 according to the most bearish analyst. Apple’s forward PE ratio (excluding cash) falls to 8 if we use analysts’ consensus estimate. That’s a really cheap valuation for a stock that is expected to grow its earnings by 21% over the next 5 years. That’s not a typo. Wall Street analysts expect Apple Inc. (NASDAQ:AAPL) to grow its earnings per share to $125 in 5 years. That’s an estimated annual growth rate of 20.7% for a $500 billion company.

Don’t be fooled by these wild estimates. Just three months ago the same analysts expected earnings of $53.30 per share for FY2013, almost 10% higher than their current estimates. Their EPS estimate for FY2014 was also $61 just three months ago.  Analysts’ current year estimates are starting to get more realistic but their really haven’t updated their 5-year estimates. Let’s take a closer look.

Apple Inc. (NASDAQ:AAPL) earned $44.15 in its 2012 fiscal year. So, analysts expect a 10.5% increase in earnings in 2013. Three months ago their 2013 growth estimate was 20.7%, same as their 5-year growth estimate. I am extremely skeptical about all of these estimates. Here is why: