Apple Inc. (AAPL)

Discount cash flow analysis

Buy Undervalued by 74.1%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Apple Inc., based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $199.46 $194.86 $190.49
Terminal Growth% 0 $202.38 $197.63 $193.11
  +1% $205.41 $200.48 $195.82

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $103.63 (overvalued by 8.74%) - 8 months ago
  • kudzi created a new valuation of $438.13 (undervalued by 4.32%) - over 5 years ago
  • RidleySmith created a new valuation of $315.73 (overvalued by 17.96%) - over 5 years ago
  • RidleySmith created a new valuation of $251.02 (overvalued by 34.77%) - over 5 years ago
  • RidleySmith created a new valuation of $367.60 (overvalued by 4.48%) - over 5 years ago
  • GordonGekko created a new valuation of $372.20 (undervalued by 9.85%) - over 6 years ago
  • GordonGekko created a new valuation of $274.02 (undervalued by 12.72%) - over 6 years ago
  • GordonGekko created a new valuation of $267.28 (undervalued by 5.3%) - 7 years ago
  • LennyTsatskin created a new valuation of $162.44 (overvalued by 38.01%) - 7 years ago
  • hfdsfgh created a new valuation of $195.60 (overvalued by 11.99%) - 7 years ago
  • hfdsfgh created a new valuation of $146.70 (overvalued by 34.7%) - 7 years ago
  • hfdsfgh created a new valuation of $146.70 (overvalued by 34.7%) - 7 years ago
  • wantes created a new valuation of $225.61 (undervalued by 12.43%) - over 7 years ago
  • tobyzero created a new valuation of $194.49 (overvalued by 2.41%) - over 7 years ago
  • tnaga created a new valuation of $306.10 (undervalued by 50.73%) - over 7 years ago
  • tnaga created a new valuation of $340.27 (undervalued by 67.55%) - over 7 years ago
  • GordonGekko created a new valuation of $189.23 (overvalued by 4.31%) - over 7 years ago
  • antbatalha created a new valuation of $187.47 (overvalued by 9.9%) - over 7 years ago
  • mikedemon created a new valuation of $180.26 (overvalued by 13.79%) - over 7 years ago
  • denmwa2030ce created a new valuation of $202.64 (undervalued by 4.82%) - over 7 years ago
  • denmwa2030ce created a new valuation of $190.17 (overvalued by 1.63%) - over 7 years ago
  • denmwa2030ce created a new valuation of $235.72 (undervalued by 21.93%) - over 7 years ago
  • SethWellbourne created a new valuation of $192.30 (overvalued by 0.05%) - over 7 years ago
  • sh0n created a new valuation of $184.36 (overvalued by 2.9%) - over 7 years ago
  • sh0n created a new valuation of $186.13 (overvalued by 1.96%) - over 7 years ago
  • sh0n created a new valuation of $179.67 (overvalued by 5.37%) - over 7 years ago
  • GordonGekko created a new valuation of $176.16 (overvalued by 7.29%) - over 7 years ago
  • burakakduman created a new valuation of $174.76 (overvalued by 6.05%) - over 7 years ago
  • burakakduman created a new valuation of $44.97 (overvalued by 75.83%) - over 7 years ago
  • burakakduman created a new valuation of $168.06 (overvalued by 9.65%) - over 7 years ago
  • spike created a new valuation of $190.14 (undervalued by 10.44%) - over 7 years ago
  • spike created a new valuation of $341.69 (undervalued by 98.47%) - over 7 years ago
  • spike created a new valuation of $341.69 (undervalued by 98.47%) - over 7 years ago
  • laguerriere created a new valuation of $161.80 (overvalued by 2.27%) - almost 8 years ago
  • GordonGekko created a new valuation of $161.62 (undervalued by 1.02%) - almost 8 years ago
  • manchini created a new valuation of $155.77 (undervalued by 2.65%) - almost 8 years ago
  • manchini created a new valuation of $445.71 (undervalued by 193.71%) - almost 8 years ago
  • gvrtalks created a new valuation of $140.87 (undervalued by 0.61%) - almost 8 years ago
  • gvrtalks created a new valuation of $140.87 (undervalued by 0.61%) - almost 8 years ago
  • divechip created a new valuation of $150.84 (undervalued by 8.14%) - almost 8 years ago
  • divechip created a new valuation of $140.67 (undervalued by 0.85%) - almost 8 years ago
  • seamuskrat created a new valuation of $140.59 (undervalued by 3.31%) - almost 8 years ago
  • jschern created a new valuation of $164.59 (undervalued by 20.16%) - almost 8 years ago
  • jschern created a new valuation of $116.05 (overvalued by 15.27%) - almost 8 years ago
  • jschern created a new valuation of $157.75 (undervalued by 15.17%) - almost 8 years ago
  • GordonGekko created a new valuation of $140.57 (undervalued by 2.63%) - almost 8 years ago
  • kdevcich created a new valuation of $164.66 (undervalued by 15.37%) - almost 8 years ago
  • kdevcich created a new valuation of $140.59 (overvalued by 1.49%) - almost 8 years ago
  • kdevcich created a new valuation of $139.48 (overvalued by 2.27%) - almost 8 years ago
  • GordonGekko created a new valuation of $139.16 (overvalued by 1.27%) - almost 8 years ago
  • dimpi created a new valuation of $93.67 (overvalued by 28.38%) - 8 years ago
  • ckc2 created a new valuation of $126.68 (overvalued by 0.44%) - 8 years ago
  • ckc2 created a new valuation of $145.62 (undervalued by 17.53%) - 8 years ago
  • SethWellbourne created a new valuation of $101.20 (overvalued by 16.89%) - 8 years ago
  • Brownmp created a new valuation of $141.59 (undervalued by 14.72%) - 8 years ago
  • GordonGekko created a new valuation of $125.75 (undervalued by 9.35%) - 8 years ago
  • SethWellbourne created a new valuation of $121.48 (undervalued by 2.56%) - 8 years ago
  • SethWellbourne created a new valuation of $115.44 (undervalued by 10.48%) - 8 years ago
  • mlongval created a new valuation of $100.82 (overvalued by 0.76%) - 8 years ago
  • rs12345 created a new valuation of $91.18 (undervalued by 2.63%) - 8 years ago
  • rs12345 created a new valuation of $78.43 (overvalued by 11.72%) - 8 years ago
  • GordonGekko created a new valuation of $96.00 (undervalued by 0.1%) - over 8 years ago
  • GordonGekko created a new valuation of $118.87 (undervalued by 10.48%) - over 8 years ago
  • GordonGekko created a new valuation of $125.99 (undervalued by 29.79%) - over 8 years ago
  • TheCrunchBlog created a new valuation of $163.98 (undervalued by 16.37%) - over 8 years ago
  • andrew created a new valuation of $91.09 (overvalued by 49.72%) - 9 years ago
  • LordTrask created a new valuation of $150.67 (overvalued by 16.84%) - 9 years ago
  • benkepes created a new valuation of $74.80 (overvalued by 59.84%) - 9 years ago
  • Abo created a new valuation of $100.47 (overvalued by 46.6%) - 9 years ago
  • jeremy created a new valuation of $199.59 (undervalued by 6.07%) - 9 years ago
  • GordonGekko created a new valuation of $144.74 (overvalued by 19.59%) - 9 years ago
  • lancewiggs created a new valuation of $219.71 (undervalued by 29.45%) - 9 years ago
  • jeremy created a new valuation of $200.12 (undervalued by 7.53%) - 9 years ago
  • Philip created a new valuation of $116.63 (overvalued by 37.33%) - 9 years ago
  • KiwiEMH created a new valuation of $166.28 (overvalued by 10.65%) - 9 years ago
  • TheCrunchBlog created a new valuation of $146.70 (overvalued by 21.17%) - 9 years ago
  • TheCrunchBlog created a new valuation of $197.63 (undervalued by 6.2%) - 9 years ago
  • stuartm created a new valuation of $228.96 (undervalued by 23.52%) - 9 years ago
  • acoy created a new valuation of $96.26 (overvalued by 47.0%) - 9 years ago
  • andrew created a new valuation of $99.27 (overvalued by 40.71%) - 9 years ago
  • Gaurav created a new valuation of $175.53 (overvalued by 5.68%) - 9 years ago
  • TheCrunchBlog created a new valuation of $149.75 (overvalued by 9.95%) - 9 years ago
  • jeremy created a new valuation of $156.43 (overvalued by 6.98%) - 9 years ago

Comments

Getting AAPL to $200 a share

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/06/getting-apple-to-200-a-share/

Starting with this valuation:

http://www.valuecruncher.com/valuations/924/edit

To move the valuation we looked at three key levers:

1. The discount rate (or weighted average cost of capital – WACC). This is a measure of the variability (both up and down) of the cash flows generated by AAPL. The more variable the cash flows the higher the discount rate. Because we are trying to get the valuation to $200 we looked at lowering the discount rate from our base case 11.0%. If we lower the base case discount rate to 10.0% (keeping all the other assumptions constant) we increase our valuation to $175.53 (a 20% increase – but still below the current share price).

2. The terminal growth (the rate of growth into the future beyond our three-year forecast period). At Valuecruncher we use a present value calculation to determine this growth rate (the present value of five years of cash flows beyond our three years of forecasts and an economy wide terminal rate – 3.5%). In our base case the 2009 to 2010 growth rate is expected to be 18-20% - based on analyst estimates. We used a 17.5% growth rate in 2011 dropping to a terminal rate of 3.5% from 2015. In this case we used a 25% growth rate in 2011 (this is above current 2009/10 forecasts of 18-20%) dropping to a terminal rate of 3.5% in 2015 – this gives a terminal growth rate of 6.25% compared to 5.75% in the base case. If we increase the terminal growth rate to 6.25% (keeping all the other assumptions constant) we increase our valuation to $159.11 (an 8% increase).

3. The terminal capital expenditure (CAPEX). This is the investment in plant, equipment and technology needed to maintain and grow the cash produced by the business expressed in revenues and profits. In our base case we used a US$900 million terminal CAPEX number. If we reduce this by US$100 million we increase our valuation to $148.49 (a 1% increase).

However if we adjust all three of these levers at the same time – discount rate to 10%, terminal growth to 6.25% and terminal CAPEX to US$800 million (while keeping all the other base case assumptions constant) – we do get close to $200 a share. The combination of those adjustments to our base case valuation is shown in the link below to a new valuation created using the Valuecruncher valuation tool. The result is a valuation of $197.63 – this is 35% above our base case valuation and 6% above the current share price.

By TheCrunchBlog, almost 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 84,722
Net Debt (Long-term borrowings less cash): -15,386
Equity Value: 164,070
Number of Shares Outstanding: 881,000,000
Calculated value per share: $197.63

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.