Information Technology:
Stock Presentation
SPR I NG 20 13
A L E X LO WMA N
PR I S CI LLA FLO R IN
DI WU
ME NG TI AN CAO
NICK MCCR E A R Y
Agenda
• Sector Review
• Qualcomm
• Corning
• Oracle
• Intel
• Apple
• Google
• Conclusion
Sector Review
16 Industries in the Info Technology Sector
Application Software
Internet Software and Services
Communications Equipment
IT Consulting and Services
Computer Storage and Peripheral
Office Electronics
Computer Hardware
Semiconductor Equipment
Electronic Component
Semiconductors
Electronic Equipment
Services-Data Proc
Electronic Manufacturing Services
Systems Software
Home Entertainment Software
Technology Distribution
Largest Companies in the Sector and SIM
Five Largest Sector Companies
Market Capitalization (Billions)
*Apple Inc. (AAPL)
427.95
*Google (GOOG)
266.30
Int. Business Machines Corp. (IBM)
237.62
Microsoft Corporation (MSFT)
235.37
*Oracle Corporation (ORCL)
170.62
SIM Companies
Market Capitalization (Billions)
*QUALCOMM Incorporated (QCOM)
110.92
*Intel Corporation (INTC)
105.15
*Corning Inc. (GLW)
18.92
Info technology as a portion of S&P and SIM
S&P 500
SIM
Telecom
Services 3.02%
Telecom Services
0.82%
Utilities Cash
Materials
3.27% 3.38%
2.63%
Utilities 3.44%
Materials 3.46%
Information
Technology
18.20%
Consumer
Discretionary
11.52%
Consumer
Staples
10.88%
Energy 11.08%
Industrials 10.22%
Health Care
12.32%
Consumer
Discretionary
12.28%
Information
Technology
18.14%
Consumer Staples
12.59%
Energy
9.83%
Industrials
9.99%
Financials 15.85%
Health Care
12.07%
Financials
14.99%
Information Technology Sector Breakdown
Percent of Assets
Oracle Corp.
Apple Inc.
Corning Inc.
Qualcomm Inc.
Google
Intel
Team Recommendation
• SIM Portfolio is currently underweight .46% relative to the S&P
• Currently weighted at 17.56% in SIM Portfolio vs 18.02% in S&P 500
• Team Recommendation: Hold with a reweighting of individual
industries
• Class Decision: Add 50 BPS
Qualcomm
QUALCOMM Incorporated (BUY)
• Founded in 1985 – 1000% growth since 1991 IPO
• Communication Equipment Industry
• Design, develop, manufacture, and market digital communication products
and services
• Operates in four segments
• CDMA Technologies (QCT)
• Technology Licenses (QTL)
• Wireless and Internet (QWI)
• Strategic Initiatives (QSI)
One Year Price and Volume History
Market Data
Market Cap
$112.0B
52-Week High
$68.57
52-Week Low
$53.09
Beta
1.17
Avg. Vol. (M)
11.2M
Shares Out (B)
1.72B
Annual Div.
$1.00
Dividend Yield
1.5%
QUALCOMM Business Outlook
CATA LYSTS
RISKS
• No signs of slowing global growth in
products/services
• Dependent on technology
adoption and licensee sales
• High industry entry barriers
• Rapid technological change
• Selling the right technology
• Significant portion of QCT
revenue from customers
• Unique approach to innovation snapdragon
• Intellectual property future
Qualcomm (QCOM)
Analyst: Alex Lowman
Date: 2/12/2013
Year
2013E
Revenue
23,964
% Grow th
Terminal Discount Rate =
Terminal FCF Growth =
2014E
27,600
15.2%
Operating Income
7,259
Operating Margin
30.3%
Interest and Other
959
Interest % of Sales
4.0%
Taxes
1,643
Tax Rate
20.0%
Net Income
6,574
% Grow th
8,196
29.7%
1,104
4.0%
1,860
20.0%
7,440
13.2%
Add Depreciation/Amort
1,438
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
1,218
4.0%
1,983
20.0%
7,934
6.6%
1,675
9,213
27.5%
1,340
4.0%
2,111
20.0%
8,442
6.4%
1,843
36,181
8.0%
9,407
26.0%
1,447
4.0%
2,171
20.0%
8,684
2.9%
1,881
38,352
2020E
40,270
6.0%
42,082
5.0%
9,588
1,534
1,611
4.0%
2,224
2,416
20.0%
8,898
9,665
2.5%
1,918
1,933
20.0%
11,288
5.7%
1,936
2,935
20.0%
10,854
6.2%
4.0%
2,822
20.0%
10,268
8.6%
1,893
4.0%
2,713
20.0%
27.0%
1,821
4.0%
2,567
20.0%
12,781
27.0%
1,751
4.0%
4.0%
12,289
27.0%
1,683
4.0%
47,337
4.0%
11,817
26.5%
TERMINAL
2023E
45,516
4.0%
11,152
26.0%
2022E
43,765
4.5%
10,470
25.0%
2021E
11,739
4.0%
1,926
4.0%
1,912
1,893
5.2%
5.0%
4.8%
4.6%
4.4%
4.2%
(247)
(218)
(171)
(136)
(118)
(94)
(82)
(77)
(71)
(74)
(77)
-1.0%
-0.8%
-0.6%
-0.4%
-0.3%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
-0.2%
1,104
0.04
7,773
14.2%
56,371
68,752
125,123
6.08%
17.0
19.0
12.4
13.9
Shares Outstanding
28.6%
10.0%
2019E
5.5%
6,806
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
8,699
33,501
2018E
5.5%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
10.3%
2017E
6.0%
0.04
Free Cash Flow
30,456
2016E
6.0%
959
Capex % of sales
1,656
2015E
10.50%
4.0%
1,218
0.04
8,219
5.7%
1,340
4.0%
8,809
7.2%
1,447
4.0%
9,000
2.2%
1,534
1,611
4.0%
1,683
4.0%
9,188
9,905
2.1%
1,751
4.0%
1,821
4.0%
10,444
7.8%
4.0%
11,305
4.9%
45%
55%
100%
1,893
4.0%
10,958
5.4%
4.0%
11,662
3.2%
3.2%
Terminal Value
186,600
Free Cash Yield
15.0
16.8
10.9
12.3
14.1
15.8
10.4
11.6
6.25%
Terminal P/E
15.9
Terminal EV/EBITDA
12.4
1,700
Implied Equity Value/Share Sensitivity to Discount Rate and FCF Growth Rate
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital % of Growth
$
$
65.86
73.60
11.8%
4,293
2.53
17,103
0.0%
-4%
Discount
FCF Grwth
74
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
9.0%
$ 81.26
$ 85.30
$ 90.09
$ 95.83
$ 102.85
$ 111.63
$ 122.91
9.5%
$ 75.26
$ 78.60
$ 82.48
$ 87.07
$ 92.59
$ 99.32
$ 107.74
$
$
$
$
$
$
$
10.0%
70.08
72.85
76.05
79.78
84.18
89.47
95.94
$
$
$
$
$
$
$
10.5%
65.54
67.87
70.53
73.60
77.18
81.41
86.49
$
$
$
$
$
$
$
11.0%
61.55
63.52
65.76
68.31
71.26
74.70
78.76
$
$
$
$
$
$
$
11.5%
58.00
59.68
61.58
63.72
66.18
69.01
72.31
$
$
$
$
$
$
$
12.0%
54.83
56.28
57.89
59.71
61.77
64.13
66.85
Multiple Valuation
Absolute
Valuation
High
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Statistic
Low
B.
C.
37.9
16.5
8.0
40.12
39.9
14.0
5.0
2.7
11.67
12.6
Median
Current
D.
20.2
8.1
4.4
19.97
20.8
E.
14.5
5.5
3.2
11.80
14.3
Valuation
Weight
DCF
$73.60
50%
P/Forward E
$73.53
10%
P/S
$77.55
10%
P/B
$73.50
10%
P/EBITDA
$64.05
10%
P/CF
$72.00
10%
My Valuation
#Your Target
Multiple
$72.86
F.
19.0
5.5
3.5
15.0
18.0
*Your
Target E,
S, B,
etc/Share
G.
3.87
14.1
21
4.27
4.0
Your Target
Price
(F x G)
H.
73.53
77.55
73.50
64.05
72.00
Price Target = $72.86
Current Price = $65.86
One Year Upside = 10.63%
Recommendation = BUY
Increase by 100 BPs
Corning
Corning Inc. (buy)
• Established since 1851, originally
focusing on glass business.
Business line
sales
earnings
Display Technology
40%
97%
- Display Technology
Telecommunications
26%
3.2%
- Telecommunications
Environment
Technologies
12.5%
1.4%
- Environment Technologies
Specialty Materials
13.5%
-1%
- Specialty Materials
Life Sciences
7.5%
2%
• Five business segments:
- Life Sciences
Corning
Corning
GLW
Current price
13.35
Beta
1.03
52 Week Range
10.62 – 14.58
Volume
11,858,351
Market Cap
19.66B
P/E
11.61
EPS
1.15
Div&Yield
0.36 (2.7%)
Corning Inc
Catalysts
Risks
• Long history with well-known brand name
• The industry is over supply
• Strong in R&D
• Majors business line (Display Technology) sales is
• New technology products will increase sales for Gorilla Glass
decaling
- tablets and smartphones
•
- windows 8 will positively affect the sales
• Heavily rely on several major customers such as
• New innovation on the fiber-optic networks this year.
• Low debt to equity ratio which is 0.16.
high pressure from oversea competitors
Samsung
DCF
Multiples
Target Price 16.52
Current Price 13.35
Potential Upside 20%
Recommend to buy
Oracle
Oracle (ORCL) Overview
• Third largest
software company by
sales
• Products range from
servers to application
software
• Heavily diversified
with subsidiaries in
over 67 countries and
more than 48% of
sales outside of the
U.S.
Market Data
Market Capitalization (USD)
Shares Outstanding (diluted)
Dividend Yield
Dividend (USD)
52 Week Price Range (USD)
154.25B
4,812M
.7%
.24
25.33-36.43
Financial Data (FY 2012)
Revenue (USD)
Revenue Growth
Operating Margin
Earnings Per Share (diluted)
Price to Earnings
37,121M
4.2%
36.9%
1.96
16.33
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Oracle 12-month Price Performance
(USD)
40
35
30
25
20
15
10
5
0
Oracle Overview
A DVA N TAG E S
RISKS
• Diversification/Acquisition
• New Segments
• High Cap/Market Leader
• Acquisition Success
• Holding $14,955 million in cash
• Brand Equity
• Global Growth and Diversity
• Java
• Increase in Capital Spending
• IBM vs. Oracle
• Software and Equipment
• Limited Growth Opportunities
Oracle Discounted Cash Flow Valuation
Terminal Discount Rate =
Year
Revenue
10.5%
2013E
38,728
% Grow th
Operating Income
Operating Margin
Oracle
Discounted
Cash Flow
Analysis
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
2014E
40,816
5.4%
13,609
14,295
2015E
42,880
5.1%
15,200
3.20%
2016E
45,453
6.0%
16,363
2017E
47,952
5.5%
17,742
2018E
50,350
5.0%
18,630
2019E
52,616
4.5%
18,942
2020E
54,720
4.0%
19,152
2021E
2022E
56,690
58,618
3.6%
3.4%
19,842
19,344
2023E
60,494
3.2%
19,358
35.1%
35.0%
35.4%
36.0%
37.0%
37.0%
36.0%
35.0%
35.0%
33.0%
32.0%
(680)
(635)
(644)
(682)
(720)
(756)
(790)
(821)
(851)
(880)
(908)
-1.8%
-1.6%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
-1.5%
2,844
22.0%
10,085
% Grow th
Add Depreciation/Amort
Terminal FCF Growth =
2,937
21.5%
10,723
6.3%
3,088
3,367
3,130
21.5%
11,427
6.6%
3,203
3,371
21.5%
12,309
7.7%
3,182
3,660
21.5%
13,363
8.6%
2,877
3,843
21.5%
14,031
5.0%
2,518
3,903
21.5%
14,249
1.6%
2,105
3,941
21.5%
14,390
1.0%
1,642
4,083
3,970
21.5%
21.5%
14,908
14,494
3.6%
1,134
3,967
21.5%
14,483
-2.8%
-0.1%
586
605
8.0%
8.2%
7.5%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
1.0%
(564)
(359)
(355)
(212)
(205)
(195)
(184)
(170)
(158)
(155)
(150)
-1.5%
-0.9%
-0.8%
-0.5%
-0.4%
-0.4%
-0.3%
-0.3%
-0.3%
-0.3%
-0.2%
Subtract Cap Ex
775
816
858
682
719
755
526
547
567
586
605
Capex % of sales
2.0%
2.0%
2.0%
1.5%
1.5%
1.5%
1.0%
1.0%
1.0%
1.0%
1.0%
Free Cash Flow
11,531
% Grow th
12,536
8.7%
NPV of Cash Flows
85,923
NPV of terminal value
74,793
47%
Projected Equity Value
160,715
100%
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
4.3%
15.2
14.3
15.0
14.1
9.7
9.2
8.8
9.5
9.0
8.7
Implied equity value/share
$ 31.54
-1.5%
14,979
5.5%
15,327
2.3%
15,403
0.5%
15,155
-1.6%
15,246
14,366
0.6%
-5.8%
Free Cash Yield
15.9
$ 32.03
8.6%
14,359
-0.1%
Terminal Value 202,994
16.2
5,095
14,203
53%
7.07%
Current Price
Upside/(Downside) to DCF
13,074
7.07%
Terminal P/E
14.0
Terminal EV/EBITDA
10.1
Debt
13,524
Cash
14,955
Cash/share
Total Assets
2.94
78,327
Debt/Assets
17.3%
Working Capital % of Growth
8%
Oracle Valuation Analysis
Oracle Company Valuation
Relative to Industry
Price/Trailing Earnings
Price/Forward Earnings
Price/Book
Price/Sales
Price/Cash Flow
Relative to S&P 500
Price/Trailing Earnings
Price/Forward Earnings
Price/Book
Price/Sales
Price/Cash Flow
High
1.3
1.3
2.5
1.7
1.5
Low Median Current
0.8
1
1.1
0.8
0.98
1.2
0.8
1.1
1.1
0.7
1.3
1.4
0.9
1.1
1.1
High
1.7
1.7
4.2
5.5
2.8
Low Median Current
0.8
1.1
0.9
0.8
1
0.87
1.4
2.1
1.5
3
4.2
3.3
1
1.5
1.1
Source: Thomson Reuters Baseline. Feb. 17, 2013
Oracle Company Valuation
Absolute Valuation
High
Price / Forward Earnings
Price / Sales
Price / Book
Price / EBITDA
Price / Cash Flow
Low
29.6
7.8
11.5
19.61
27.6
Source: Thomson Reuters Baseline. Feb. 17, 2013
10.3
3.4
3
7.92
8.7
Target
Target
Median Current Multiple Value/Share
15.1
5.5
5.3
13.5
15.3
12.4
4.5
3.5
8.48
10.8
15.95
4.33
3.65
9.96
10.75
1.98
7.59
8.64
3.14
2.93
Target
Price
$
$
$
$
$
31.54
32.88
31.51
31.32
31.51
Oracle Price Target
Recommendation: SELL
Oracle Company Valuation
Metric
Target
Price
Discounted Cash Flow
Price / Forward Earnings
Price / Sales
Price / Book
Price / EBITDA
Price / Cash Flow
$
$
$
$
$
$
31.54
31.54
32.88
31.51
31.32
31.51
Projected Target Price
Current Price (April 6, 2013)
Potential Downside
$ 31.60
$ 32.02
-1.32%
Weight
75%
5%
5%
5%
5%
5%
Intel
Company Overview
 “Chip Maker”: Designs and manufactures digital technology platforms
that consist of microprocessors and chipsets
 Develops and sells software and services
 Five operating segments:
• PC Client Group
• Data Center Group
• Other Intel Architecture
• Software and Services
• All Other Segments
Business Organization
Stock Information
• Current price: $21.09
• 52-week range: $19.23-$29.27
• Current weight: 1.54%
• Target price from DCF: $22.66 (+7.4%)
• Target price from DCF and Multiples: $22.95 (+8.8%)
• Target weight:
• Bull: $27.63 (+31%)
• Bear: $20.45 (-3%)
• Recommendation: HOLD
Revenue Forecast
PC Client Group
Data Center Group
Other Intel Architecture
Software and Services
Forecasted Revenue Breakdown
Forecasted Income Statement
DCF Model
DCF Model - Bull
DCF Model - Bear
Multiple Analysis
High
Low
Median
Current
Target Multiple
Target E, S,
B/Share
Target Price
P/ Forward E
35.7
8.4
17.2
11
13
2.0
26.0
P/S
8.3
1.8
3.3
1.9
2.5
10.9
27.2
P/B
6.2
1.8
3
2.1
2.4
8.5
20.4
P/EBITDA
23.1
4.31
9.21
4.59
6.5
2.7
17.5
P/CF
25.5
5.1
10.4
5.6
6.5
3.9
25.2
Approach
Valuation
Weight
Weighted valuation
DCF
$22.66
50%
$11.33
P/E
$26.00
10%
$2.60
P/S
$27.18
10%
$2.72
P/B
$20.36
10%
$2.04
P/EBITDA
$17.46
10%
$1.75
P/CF
$25.18
10%
$2.52
100%
$22.95
Final price target
Catalysts
• Strong R&D, more new products and services
• Strategic collaboration with PC, smartphone and tablets makers
• Tap the potential of emerging markets: China, Brazil, Africa
• Balance Sheet
• Stock repurchase plan
Risks
• Declining PC market
• Falling behind in mobile market; competition from Qualcomm and ARM in
mobile chip
• Poor performance of Other IA operating segment
• Lower selling price and shrinking margin
Worldwide Devices Shipment by Segment (Thousands of Units)
Source: Gartner (April 2013)
Market Consensus
Source: Financial Times
Recap
 Target price: $22.66
 Recommendation: Hold
• Slightly undervalued
• Lots of uncertainties going forward, not sure whether Intel can catch up in mobile
market
• Blue-chip stock, growing dividends: 11.2% increase in 2012
Apple
Apple (Buy)
• Hardware Producer
• Segments:
• America’s (~37%)
• Europe (~23%)
• China (~14)
• Japan and Asia Pac both (~7%)
• Retail (12%)
Current Price : $523.30
Apple (Buy)
• Current Weight: 3.08%
• Desired Weight: 4.5%
• Target Price: $559 (33% upside)
• Bear: $390 (8% down)
• Bull: $670 (56% up)
• Consensus Mid: $590
• Low: $420 High: $888
Analysts Recommendation (Apple)
• Marketwatch
DCF Mid
Ye a r
Re ve nue
2012
156,508
% Grow th
Ope ra ting
Income
Operating Margin
Inte re st a nd
Othe r
Interes t % of Sales
Ta x e s
Tax Rate
Ne t Income
16.7%
55,241
% of Sales
Plus/(minus)
Cha nge s W C
% of Sales
Subtra ct Ca p Ex
Capex % of s ales
Fre e Ca sh Flow
29.7%
522
523
0.3%
0.3%
14,030
26.0%
41,733
14,263
26.0%
40,595
-2.7%
2,817
1.8%
12,119
7.7%
1,003
0.64%
54,347
% Grow th
3,288
1.8%
2,723
1.5%
2,740
1.50%
43,557
-19.9%
NPV of Ca sh Flow s
271,989
NPV of te rmina l va
263,791
lue
Proje cte d Equity Va
535,780
lue
Fre e Ca sh Flow Yie13.51%
ld
Curre nt P/E
9.6
Projected P/E
5.8
Curre nt EV/EBITDA
(3.0)
Projected EV/EBITDA (3.0)
Sha re s
Outsta nding
54,335
35.3%
% Grow th
Add
De pre cia tion/
Amort
2013E
182,662
941
Curre nt Price
$
427.72
Implie d e quity va
$ lue
569.68
/sha re
Upside /(Dow nside ) to
33.2%
DCF
2014E
209,368
14.6%
58,879
28.1%
2015E
239,726
14.5%
55,137
23.0%
2016E
263,699
10.0%
60,651
23.0%
2017E
284,795
8.0%
65,503
23.0%
2018E
296,187
4.0%
68,123
23.0%
2019E
308,034
2020E
318,815
4.0%
70,848
3.5%
73,328
23.0%
23.0%
2021E
329,974
3.5%
72,594
22.0%
3.5%
75,135
22.0%
524
527
580
627
652
678
701
726
751
0.25%
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
0.22%
15,445
26.0%
43,958
8.3%
3,769
1.8%
4,161
2.0%
3,141
1.50%
48,294
10.9%
0.50765
0.49235
1.0
14,473
26.0%
41,192
-6.3%
4,315
15,920
26.0%
45,311
10.0%
4,747
17,194
26.0%
48,936
8.0%
5,126
17,881
26.0%
50,893
4.0%
5,331
18,597
19,248
26.0%
52,929
26.0%
54,781
4.0%
5,545
3.5%
5,739
19,063
26.0%
54,257
-1.0%
5,940
26.0%
56,156
3.5%
6,147
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
(6,038)
(4,580)
(3,957)
(2,058)
(2,140)
(1,938)
(2,006)
(2,076)
-2.5%
-1.7%
-1.4%
-0.7%
-0.7%
-0.6%
-0.6%
4,315
1.8%
35,726
-26.0%
4,747
1.8%
41,164
15.2%
5,126
1.8%
45,353
10.2%
5,331
1.8%
49,030
8.1%
5,545
5,739
1.8%
50,991
1.8%
53,027
4.0%
4.0%
5,940
1.8%
52,441
-1.1%
Te rmina l Va lue
9.2
5.5
(2.8)
(2.8)
19,730
1.8%
Fre e Ca sh Yie ld
9.9
6.0
(3.1)
(3.1)
2022E
341,523
-0.6%
6,147
1.8%
54,276
3.5%
749,013
7.25%
Te rmina l P/E
13.3
Te rmina l EV/EBITDA
7.9
DCF Bear
Ye a r
Re ve nue
2012E
156,508
% Grow th
Ope ra tin
g Income
55,241
522
Interes t % of Sales 0.3%
Ta x e s
Tax Rate
Ne t Income
14,030
26.0%
41,733
% Grow th
Add
De pre cia
tion/Amo
rt
% of Sales
Plus/(min
us)
Cha nge s
WC
% of Sales
178,419
14.0%
Operating Margin 35.3%
Inte re st
a nd
Othe r
2013E
54,335
30.5%
523
0.3%
14,263
26.0%
40,595
-2.7%
2,817
1.8%
12,119
7.7%
Subtra ct Ca p Ex
1,003
Capex % of s ales 0.64%
Fre e Ca sh Flow
54,347
% Grow th
3,288
1.8%
2,723
1.5%
2,740
1.54%
43,557
-19.9%
2014E
198,045
11.0%
58,879
29.7%
Sha re s
Outsta nd
ing
9.9
4.1
(3.1)
(3.1)
941
Curre nt Price
$ 427.72
Implie d e quity
$ 389.76
va lue /sha re
Upside /(Dow ns
-8.9%
ide ) to DCF
213,889
8.0%
42,778
20.0%
2016E
223,514
4.5%
44,703
20.0%
2017E
233,572
4.5%
46,714
20.0%
2018E
242,915
4.0%
48,583
20.0%
2019E
250,202
2020E
257,708
3.0%
45,036
3.0%
46,388
18.0%
18.0%
2021E
265,440
3.0%
47,779
18.0%
2022E
273,403
3.0%
46,478
17.0%
524
428
447
467
486
500
515
531
547
0.26%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
15,445
26.0%
43,958
8.3%
3,769
1.9%
4,161
2.1%
3,141
1.59%
48,294
10.9%
NPV of Ca sh
214,632
Flow s
0.585508
NPV of te rmina
151,942
l va lue
0.414492
Proje cte d Equity
366,574
Va lue
1
Fre e Ca sh Flow
13.51%
Yie ld
Curre nt P/E
9.6
Projected P/E
4.0
Curre nt EV/EBITDA
(3.0)
Projected EV/EBITDA
(3.0)
2015E
11,233
26.0%
31,972
-27.3%
3,850
11,739
26.0%
33,411
4.5%
4,023
12,267
26.0%
34,914
4.5%
4,204
12,758
26.0%
36,311
4.0%
4,372
11,840
12,195
26.0%
33,697
26.0%
34,708
-7.2%
4,504
3.0%
4,639
12,561
26.0%
35,749
3.0%
4,778
26.0%
34,799
-2.7%
4,921
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
(2,972)
(1,747)
(1,826)
(1,688)
(1,304)
(1,343)
(1,383)
(1,425)
-1.4%
-0.8%
-0.8%
-0.7%
-0.5%
-0.5%
-0.5%
3,850
1.8%
29,281
-39.4%
4,023
1.8%
31,829
8.7%
4,204
1.8%
33,262
4.5%
4,372
1.8%
34,783
4.6%
4,504
4,639
1.8%
32,517
1.8%
33,492
-6.5%
3.0%
4,778
1.8%
34,497
3.0%
Te rmina l Va lue
Fre e Ca sh Yie ld
9.2
3.8
(2.8)
(2.8)
12,227
-0.5%
4,921
1.8%
33,509
-2.9%
431,427
7.77%
Te rmina l P/E
12.4
Te rmina l EV/EBITDA
6.4
DCF Bull
Ye a r
Re ve nue
2012E
156,508
% Grow th
Ope ra ting
Income
Operating Margin
Inte re st a nd
Othe r
Interes t % of Sales
Ta x e s
Tax Rate
Ne t Income
18.0%
55,241
% of Sales
Plus/(minus)
Cha nge s W C
% of Sales
Subtra ct Ca p Ex
Capex % of s ales
Fre e Ca sh Flow
29.4%
522
523
0.3%
0.3%
14,030
26.0%
41,733
14,263
26.0%
40,595
-2.7%
2,817
1.8%
12,119
7.7%
1,003
0.64%
54,347
% Grow th
3,288
1.8%
2,723
1.5%
2,740
1.48%
43,557
-19.9%
NPV of Ca sh Flow s
308,017
NPV of te rmina l va
322,810
lue
Proje cte d Equity Va
630,827
lue
Fre e Ca sh Flow Yie13.51%
ld
Curre nt P/E
9.6
Projected P/E
6.9
Curre nt EV/EBITDA
(3.0)
Projected EV/EBITDA (3.0)
Sha re s
Outsta nding
54,335
35.3%
% Grow th
Add
De pre cia tion/
Amort
2013E
184,679
941
Curre nt Price
$
427.72
Implie d e quity va
$ lue
670.74
/sha re
Upside /(Dow nside ) to
56.8%
DCF
2014E
214,228
16.0%
58,879
27.5%
2015E
248,505
16.0%
64,611
26.0%
2016E
273,355
10.0%
71,072
26.0%
2017E
300,691
10.0%
78,180
26.0%
2018E
318,732
6.0%
79,683
25.0%
2019E
337,856
2020E
353,060
6.0%
84,464
4.5%
88,265
25.0%
25.0%
2021E
368,947
4.5%
88,547
24.0%
3.8%
91,912
24.0%
524
608
669
736
780
826
864
903
937
0.24%
0.24%
0.24%
0.24%
0.24%
0.24%
0.24%
0.24%
0.24%
15,445
26.0%
43,958
8.3%
3,769
1.8%
4,161
1.9%
3,141
1.47%
48,294
10.9%
0.48827
0.51173
1
16,957
26.0%
48,262
9.8%
4,473
18,653
26.0%
53,088
10.0%
4,920
20,518
26.0%
58,397
10.0%
5,412
20,920
26.0%
59,542
2.0%
5,737
22,176
23,173
26.0%
63,115
26.0%
65,955
6.0%
6,081
4.5%
6,355
23,257
26.0%
66,193
0.4%
6,641
26.0%
68,708
3.8%
6,893
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
1.8%
(6,906)
(4,748)
(5,223)
(3,322)
(3,521)
(2,760)
(2,884)
(2,528)
-2.8%
-1.7%
-1.7%
-1.0%
-1.0%
-0.8%
-0.8%
4,473
1.8%
42,010
-13.0%
4,920
1.8%
48,790
16.1%
5,412
1.8%
53,669
10.0%
5,737
1.8%
56,535
5.3%
6,081
6,355
1.8%
59,927
1.8%
63,457
6.0%
5.9%
6,641
1.8%
63,582
0.2%
Te rmina l Va lue
9.2
6.5
(2.8)
(2.8)
24,141
1.8%
Fre e Ca sh Yie ld
9.9
7.1
(3.0)
(3.1)
2022E
382,967
-0.7%
6,893
1.8%
66,420
4.5%
916,593
7.25%
Te rmina l P/E
13.3
Te rmina l EV/EBITDA
8.2
Multiples
Valuation (10yr)
Forward P/E
High
Low
Median
current
Your Target Multiple
Your Per share
Target Price
81.6
9.4
26.1
9.4
13.5
44.64
602.64
66.33
6.76
22.88
6.76
10.5
58.43
613.515
P/S
8.3
0.9
4
2.4
3.5
165.55
579.425
P/CF
82.6
8.7
29.8
8.7
10.5
57.79
606.795
P/B
11.9
1.2
5.5
3.4
3.75
187.2
702
P/EBITDA
Based on the Multiple Valuation the price target is around $600 which is right above consensus.
Apple
• Catalysts:
• Product Lines
• China and Japan Expansion
• Retail Expansion
• Balance Sheet
• Tablet Market
• Risks:
• Exchange Rate Changes slowing sales growth in Japan
• Chinese regulation
• Global Economy
• Shrinking Margins/ Increased Rivalry
• Cannibalization of product lines
Closing Remarks
• I believe that Apple long term will struggle with margins shrinking
and slowed growth in Revenues. That I do believe and I believe
margins will shrink even more than what analysts believe. This is the
reason for my lower price targets.
• The big caveat here is that I will buy anything at the right price.
• Reasons for low Price
• Growth Investors Turned Away
• Bad Press
• Innovation slowdown (This is for every company in the sector why is Apple the
one taking the full hit.)
Closing Remarks
• Reasons to Buy:
• Great Historical multiple valuations (at lows)
• Even with a more bearish outlook than analysts still massive upside.
• Stock has a lot of bad news baked in
• Now is starting to look like a value investor play and should be bought in that
realm of MF’s and ETF’s.
Google
Multiple Valuation: Internet Software and Services
Absolute Basis
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to SP500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
173.9
104
11.3
24.4
92.0
Low
14.1
13.7
2.6
2.8
10.8
Median
30.1
24.7
5.2
6.2
20.6
Current
20.4
18.1
3.5
4.2
15.9
High
9
6.1
3.6
15.5
8.1
Low
1.2
1.1
1.3
3
1.3
Median
1.9
1.7
2
4.5
2
Current
1.4
1.3
1.5
3.1
1.6
Multiple
Valuation:
Google
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
Low
Median
Current
B.
61.2
29.
56.3
108.32
167.7
C.
12.9
4.6
2.9
12.27
12.6
D.
21.
7.6
5.5
19.81
20.4
E.
17.2
5.
3.8
13.38
16
Relative to
Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
1.3
1.9
5.7
3.1
3.6
.92
.62
.9
.6
.9
1.1
.97
1.4
1.6
1.3
.96
.95
1.1
1.2
1.0
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
6.4
3.7
17.7
19.2
15.1
1.1
.99
1.3
3.6
1.4
1.5
1.4
2.6
6.7
2.2
1.3
1.2
1.6
3.6
1.6
Target
Multiple
F.
23.5
5.25
3.8
16.5
23
Value/
Share
G.
32.21
152.5
217.33
49.48
32.63
Target Price
H.
756.93
800.63
825.00
816.42
750.49
Recommendation: HOLD
• Current Price: $774.85
• Price Target: $790
• Potential Upside/Downside: 2%
Conclusion
Recommendation
Security
Oracle Corp.
Apple Inc.
Corning Inc.
Qualcomm Inc.
Unit Cost
$ 31.81
$ 288.75
$ 16.77
$ 62.93
Market Price Quantity Unrealized Gain/Loss % of Assets
$
32.33 13,300 $
6,889
3.75%
$
442.66
800 $
123,132
30.80%
$
13.33 16,200 $
(55,668)
1.88%
$
66.94
4,700 $
18,833
2.74%
Recommendation
-375 BPS
+142 BPS
+133 BPS
+100 BPS