AAPL Fall 2011 Equity Valuation Model

DCF I performed for AAPL and analysis from Fall 2011.

 

We are initiating coverage on Apple Inc with a BUY rating at a current price of $404 and a target price of $511.

 

Apple is one of the worlds largest manufacturers of consumer electronics including personal computers and peripherals.  It is enjoying large amounts of growth in both its personal computer products as well as mobile phones and tablet computers.  Currently, the price of $404 is in line with industry expectations for current earnings, however, we see a continued growth story that will see the stock to $511 within the next year.   The balance sheet for Apple is rock solid, with no long term debt on the books and a large stockpile of cash and cash equivalent assets.  This leaves Apple agile and adaptable to changing market conditions and quick to respond to competition.

 

Apple is also enjoying the fruits of a growing market segment in mobile phones.  While increasingly being in a battle with Android powered phones and losing some market share to these competing products, the overall market is growing which leads to continued sales and revenue growth.  Overall, both the topline and bottom line have consistently grown for Apple.  In the near term, new products will boost sales as Apple capitalizes on its cyclical customer base for its popular iPhone and iPad products.  Indications from industry analysts are that the component prices may be going up in the near term which may eat into Apple’s bottom line.

 

The company is known for continued innovation, and invests about 3% of its revenue into R&D efforts.  Rumors have it that Apple will be looking for a new ocean to play in within the consumer electronics domain – televisions are a largely non-innovative product sector that Apple analysts have said the company may be targeting for disruption.  It is this kind of seek and innovate mentality that has us buying Apple.

 

2007

2008

2009

2010

2011E 2012E 2013E Terminal Value
Sales (income)

24578

37491

42905

65225

$86,888.09

$119,952.14

$165,598.26

CoGs (income)

16426

24294

25683

39541

$51,299.24

$74,647.39

$103,053.41

Gross Profit(income)

8152

13197

17222

25684

$35,588.85

$45,304.75

$62,544.85

Advertisement (Income)

$0.00

$0.00

$0.00

R&D (Income)

782

1109

1333

1782

$2,183.81

$3,476.71

$4,799.72

Other SG&A (Income)

2963

3761

4149

5517

$6,670.75

$11,489.80

$15,862.08

EBIT

4407

8327

11740

18385

$26,734.30

$30,338.25

$41,883.05

Taxes

-1511

-2828

-3831

-4527

-$6,431.51

-$7,281.18

-$10,051.93

Interest Expense

647

653

407

311

$204.55

$1,447.83

$1,998.78

Net Income

3495

6119

8235

14013

$20,705.33

$24,504.90

$33,829.90

Free Cash Flow              
Add Back:  Depreciation

$1,304.15

$1,800.43

$2,485.56

Investment in Fixed Assets

-$3,419.57

-$4,720.85

-$6,517.30

Change in Working Capital

-$1,208.24

-$1,668.02

-$2,302.76

Free Cash Flow To All Investors

$17,381.67

$19,916.46

$27,495.40

Present Value        

16286.25819

17485.24679

438673.7022

$505,780.92

 

Capital Structure Details
Long Term Debt

0.00

Equity

310,000.00

Beta

1.050

Ke

0.0673

Kd

0.0150

WACC

0.06726

Stock Price

$404

Forward P/E

18.40

Discounted Cash Flow Valuation
Total Firm Value

$472,445

Less Value Of Debt

$0

Value of Equity

472,445

Value Per Share

511

 

Relative Value
Current P/E

18.4

Forward PEG

0.59

DDM Value

NA

Industry P/E

18

Relative Value

395

AAPL Fall 2011 Equity Valuation Model

Apparently I was being conservative – price per share @ June 28 = $572 vs $511 valuation. Price per share in Fall 2011 = $400

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Jason is an technical business professional who has deep hands-on technical experience as a software engineer and architect and has leveraged this experience to transition from project leadership into product management. He holds a MS in Computer Science from Northeastern University and an MBA from Babson College. He is continuously striving to learn and experience new challenges.

Posted in Equity Analysis

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