Apple suffers from a Steve Jobs discount, and it's not fair.
Ever since Jobs, the chief executive officer, disclosed that he had a rare form of pancreatic cancer in August 2004, Apple's stock has been underpriced. That assertion may seem absurd, given that the shares have risen more than 2,000 percent since then and the company's market value of $325 billion is second only to that of Exxon Mobil. Apple's share price closed Friday at $351.99.
It should be much higher. Since 2004, Apple earnings have gained 134 percent a year on average. In 2009, net income rose 35 percent, during the biggest economic collapse since the Great Depression. And they increased 70 percent last year. Yet Apple's price-earnings ratio based on expected earnings in fiscal 2012 is only 11, compared with the Standard & Poor's 500 Index's average of 15. Trading at the S&P 500 multiple, Apple's stock should be more like $480.
Although chief operating officer Tim Cook is regarded as a very capable successor, many see Jobs like some sort of shaman, impossible to replace. Most pundits point out that Apple's product plans are probably set for the next four years at least. But that reassurance is a back-handed compliment, suggesting that all bets are off on product innovation after that.
Recently, the Central Laborers' Pension Fund of Jacksonville put a proposal on Apple's proxy asking the company to more specifically spell out its succession plan, the Financial Times reported. The influential shareholder advisory service Institutional Shareholder Services backed the proposal. And on the day of the recent shareholder vote, judging by the media coverage, you would have thought the vote's approval was a done deal. (It was voted down.)
The intense speculation about the nature of Jobs' health and the calls for Apple's board to release his medical records to the public are macabre and unprecedented in the corporate world. It speaks to the high regard with which he is held. But this anxiety has also weighed on the stock.
Why is it assumed that Apple doesn't have a succession plan, though? Just because it hasn't disclosed it doesn't mean one doesn't exist. Given the performance of the company in the past 10 years and the outside directors on Apple's board — including Bill Campbell of Intuit, Mickey Drexler of J. Crew Group, Andrea Jung of Avon Products, Art Levinson of Genentech, Ron Sugar of Northrop Grumman and former Vice President Al Gore — it would seem they have earned the benefit of the doubt on this.
There is real management talent at Apple that gets overlooked due to our fascination with Jobs: Cook, Jonathan Ive, Philip Schiller, Scott Forstall, Ron Johnson and Peter Oppenheimer. These are all very capable managers who have been with Apple for at least a decade. All have various strengths. None is a replacement for Jobs, but that's an impossible task.
Apple has always held its product plans, communications and thoughts on management succession close to the vest. This shouldn't be a surprise. Critics have previously complained that Apple's retail store strategy would fail. We now see how the iPad is able to compete so effectively on price with its competitors partly because of its network of retail stores.