Apple Inc. (AAPL)
Covering Analyst: Cameron Schwartz
cschwar3@uoregon.edu
Company Overview
› Incorporated in 1977 to sell personal computer kits by
Steve Jobs and Steve Wozniak
› Jobs leaves company in 1985
› Jobs returns in 1996, becomes CEO in 1997
› iPod launch in 2001 sets path for series of revolutionary
product launches
› Largest publicly traded corporation by market
capitalization: $554.4 Billion
– More than 4% of S&P 500 MarketCap since February
Apple’s Products
Apple Software
› Desktop – OS X Mountain
`
Lion
› Mobile – iOS 6
– iCloud
Strategic Positioning
› Supply Chains Operations
› Research and Development
› Sales and Marketing
Business Growth Strategies
› Innovation
› Retail Stores
› Educational Institutions
› Asia-Pacific
Industry
› PC Market Growth Slowing – (5.1%) until 2017
– Tablet Market Growing
› Smartphone Market Growing
– Market Research projects 16% CAGR
Competitors
Tall Firs Portfolio
› 8/3/12 – Purchased 75 shares at $616.80
› 9/28/12 – Sold 25 shares at $679.58
› Transaction realized gains - $1,569.50
› Current cost basis - $30,840.17
› Current Unrealized Losses - $1,372
Svigals Portfolio
› 2/3/2011 – Purchased 9 shares at $459.85
› 4/9/2012 – Sold 3 shares at $627.57
› Transaction realized gains - $503.16
› Current cost basis - $2,759.10
› Current unrealized gains - $777.06
Revenue Model
› Percentage of Revenue method
› Product Segment
–
–
–
–
Slowing year-over-year growth
Strong growth from iPhone & iPad
Slow/declining growth from iPod, Desktops, Portables
Unable to predict new products
› Apple TV?
› Geographic Segment
– Americas consistent
– Asia-Pacific growing into 2nd largest geographic segment
– Europe continues to slow
Working Capital Model
› Projected by Percentage of Revenue
Working Capital Model
($ in millions)
Total Revenue
2009A
2010A
2011A
2012A
Q1
Q2
Q3
Q4
12/31/2012E
03/31/2013E
06/30/2013E
09/30/2013E
2013E
Q1
Q2
Q3
Q4
12/31/2013E
03/31/2014E
06/30/2014E
09/30/2014E
2014E
2015E
2016E
2017E
2018E
42,905.00
65,225.00
108,249.00
156,508.00
55,670.55
49,862.43
43,143.04
44,763.19
193,439.20
62,137.34
54,978.88
50,903.48
51,357.06
219,376.76
245,251.48
264,860.31
279,183.36
287,905.07
22,874.65
Current Assets
Accounts Receivable
3,361.00
5,510.00
5,369.00
10,930.00
15,127.87
12,188.59
11,852.48
14,110.14
14,110.14
16,209.74
15,271.91
13,984.47
16,746.87
16,746.87
18,092.32
19,955.23
21,416.81
Days Sales Outstanding A/R
28.59
30.83
18.10
25.49
25.00
22.00
25.00
29.00
26.62
24.00
25.00
25.00
30.00
27.86
27.00
27.50
28.00
29.00
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Short-Term Investments
7.83%
455.00
6.66
1.06%
18,201.00
8.45%
1,051.00
9.96
1.61%
14,359.00
4.96%
776.00
4.52
0.72%
16,137.00
6.98%
791.00
3.41
0.51%
18,383.00
1,177.86
1,244.87
979.02
1,280.18
7.63%
1,280.18
7.38%
1,377.26
7.53%
1,494.19
7.67%
1,590.55
7.95%
1,665.67
2.50
3.30
3.40
4.00
3.51
3.50
3.50
3.50
3.50
18,371.28
19,446.35
21,826.75
0.58%
21,826.75
0.56%
23,298.89
0.56%
25,161.73
0.57%
26,522.42
0.58%
27,350.98
42.42%
22.01%
14.91%
11.75%
33.00%
39.00%
1,135.00
2.65%
1,696.00
3.95%
1,444.00
3.37%
26,292.00
61.28%
1,636.00
2.51%
4,414.00
6.77%
3,447.00
5.28%
30,417.00
46.63%
2,014.00
1.86%
6,348.00
5.86%
4,529.00
4.18%
35,173.00
32.49%
2,583.00
1.65%
7,762.00
4.96%
6,458.00
4.13%
46,907.00
29.97%
3,061.88
2,954.00
1,144.00
734.00
3,364.00
29,656.00
69.12%
4,768.00
2,005.00
638.00
1,027.00
6,384.00
36,801.00
56.42%
7,777.00
4,260.00
244.00
1,814.00
10,467.00
45,640.00
42.16%
5,601.00
81.94
13.05%
12,015.00
113.87
18.42%
3,852.00
8.98%
0.00
% of Revenue
Deferred tax assets
% of Revenue
Vendor non-trade receivables
% of Revenue
Other Assets
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Charges
% of Revenue
Income
Taxes Payable
Total Current Liabilities
% of Revenue
1,194.04
1,150.75
1,018.79
1,105.62
7.29%
1,105.62
3.00
3.50
4.00
4.00
3.51
18,982.94
19,695.80
0.57%
19,695.80
18,641.20
19,242.61
18,834.29
44.00%
44.00%
10.18%
30.00%
35.00%
37.00%
42.50%
9.95%
9.50%
9.50%
9.50%
9.50%
2,991.75
2,804.30
3,133.42
3,417.55
3,298.73
3,308.73
3,543.64
8,350.58
7,479.36
6,902.89
8,952.64
9,320.60
8,246.83
7,635.52
9,757.84
6,680.47
6,980.74
7,765.75
7,833.56
6,213.73
6,597.47
7,635.52
7,703.56
52,786.12
94.82%
50,237.54
100.75%
49,327.14
114.33%
54,831.17
122.49%
3,133.42
1.62%
8,952.64
4.63%
7,833.56
4.05%
54,831.17
28.35%
54,980.70
88.48%
53,902.42
98.04%
52,377.54
102.90%
60,858.84
118.50%
3,543.64
1.62%
9,757.84
4.45%
7,703.56
3.51%
60,858.84
27.74%
3,973.07
1.62%
10,545.81
4.30%
8,583.80
3.50%
65,871.16
26.86%
4,290.74
1.62%
11,256.56
4.25%
9,270.11
3.50%
71,428.56
26.97%
4,522.77
1.62%
11,586.11
4.15%
9,771.42
3.50%
75,410.08
27.01%
4,664.06
1.62%
11,804.11
4.10%
10,076.68
3.50%
78,436.14
27.24%
15,452.00
8,295.00
350.00
3,277.00
20,820.00
67,727.00
43.27%
20,820.00
2,825.00
152.63
661.05
23,136.58
75,922.70
136.38%
23,136.58
2,825.00
127.55
743.06
25,346.07
75,583.60
151.58%
25,346.07
2,825.00
101.66
824.36
27,448.37
76,775.50
177.96%
27,448.37
2,825.00
109.61
905.87
29,477.10
84,308.28
188.34%
29,477.10
11,300.00
491.44
4,933.65
36,334.88
91,166.06
47.13%
36,334.88
3,973.32
180.61
1,348.80
39,140.01
94,120.71
151.47%
39,140.01
3,219.49
146.34
1,442.30
41,063.55
94,965.97
172.73%
41,063.55
2,758.22
114.93
1,522.10
42,414.59
94,792.13
186.22%
42,414.59
3,094.13
124.76
1,611.52
44,021.97
104,880.81
204.22%
44,021.97
13,045.17
566.64
7,958.50
49,675.27
110,534.11
50.39%
49,675.27
15,160.20
631.67
9,713.15
55,753.99
121,625.15
49.59%
55,753.99
16,547.51
689.48
11,628.37
61,362.61
132,791.17
50.14%
61,362.61
17,772.02
740.50
13,685.32
66,189.81
141,599.89
50.72%
66,189.81
18,778.94
782.46
15,858.81
69,892.40
148,328.55
51.52%
14,632.00
85.29
13.52%
21,175.00
91.39
13.53%
27,860.90
26,302.88
24,196.30
27,363.99
27,363.99
86.99
14.15%
32,980.14
30,178.69
27,354.86
32,004.51
32,004.51
87.87
14.59%
34,628.21
88.00
14.12%
37,354.69
87.50
14.10%
39,536.65
87.00
14.16%
41,165.75
86.50
14.30%
5,723.00
9,247.00
11,414.00
12,247.52
11,468.36
10,354.33
13,428.96
13,428.96
13,670.22
12,095.35
11,198.76
15,407.12
15,407.12
17,167.60
18,672.65
19,822.02
20,153.35
8.77%
0.00
8.54%
0.00
7.29%
0.00
0.00
0.00
7.02%
0.00
7.00%
7.05%
7.10%
7.00%
11,506.00
20,722.00
27,970.00
38,542.00
46,788.89
44,502.67
41,453.51
48,178.88
48,178.88
54,106.84
49,971.08
46,698.18
55,757.15
55,757.15
61,115.37
66,092.03
69,967.64
72,259.50
26.82%
31.77%
25.84%
24.63%
84.05%
89.25%
96.08%
107.63%
24.91%
87.08%
90.89%
91.74%
108.57%
25.42%
24.92%
24.95%
25.06%
25.10%
6.94%
0.00
DCF Assumptions
› COGS: % of Sales, Increases in Q1 and Q4 annually due
to projected new product iterations
› R&D: % of Sales, Increase as Apple continues to pursue
introducing innovative products
› SG&A: % of Sales, Historical rates based on number of
retail stores opened.
› Depreciation: Straight line depreciated
› Acquisitions: % of Revenue, conservative rate
DCF cont.
Discounted Cash Flow Analysis
Q1
($ in millions)
2009A
2010A
2011A
2012A
Total Revenue
42,905.00
65,225.00
108,249.00
156,508.00
% YoY Growth
Cost of Sales (Less D&A)
Q2
12/31/2012E 03/31/2013E
61,050.23
51,018.52
Q3
Q4
06/30/2013E
09/30/2013E
40,662.30
43,843.39
2013E
196,574.43
Q1
Q2
Q3
Q4
12/31/2013E
03/31/2014E
06/30/2014E
09/30/2014E
72,242.22
58,536.24
45,970.31
49,905.33
2014E
2015E
2016E
2017E
2018E
226,654.11
252,669.97
275,791.87
296,200.29
312,982.32
-23%
52.02%
65.96%
44.58%
32%
30%
16%
22%
25.60%
18%
15%
13%
14%
15.30%
11.48%
9.15%
7.40%
5.67%
24,949.00
38,514.00
62,617.00
84,569.00
36,617.18
29,590.74
23,177.51
25,429.16
114,814.60
43,345.33
33,951.02
26,203.08
29,444.15
132,943.58
144,021.89
155,822.41
165,872.16
173,705.19
% Revenue
58.15%
59.05%
57.85%
54.03%
59.98%
58.00%
57.00%
58.00%
58.41%
60.00%
58.00%
57.00%
59.00%
58.65%
57.00%
56.50%
56.00%
55.50%
Gross Profit
17,956.00
26,711.00
45,632.00
71,939.00
24,433.05
21,427.78
17,484.79
18,414.22
81,759.83
28,896.89
24,585.22
19,767.23
20,461.19
93,710.53
108,648.09
119,969.46
130,328.13
139,277.13
Gross Margin
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% Revenue
Research And Development
% Revenue
42%
41%
42%
46%
40%
42%
43%
42%
42%
40%
42%
43%
41%
41%
43%
44%
44%
45%
4,149.00
5,517.00
7,599.00
10,040.00
3,968.26
3,316.20
2,643.05
2,849.82
12,777.34
4,695.74
3,804.86
2,988.07
3,243.85
14,732.52
16,423.55
17,926.47
19,253.02
20,343.85
9.67%
8.46%
7.02%
6.42%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
6.50%
734.00
1,027.00
1,814.00
3,277.00
661.05
743.06
824.36
905.87
4,933.65
1,348.80
1,442.30
1,522.10
1,611.52
7,958.50
9,713.15
11,628.37
13,685.32
15,858.81
1.71%
1.57%
1.68%
2.09%
1.08%
1.46%
2.03%
2.07%
2.51%
1.87%
2.46%
3.31%
3.23%
3.51%
3.84%
4.22%
4.62%
5.07%
1,333.00
1,782.00
2,429.00
3,381.00
1,343.11
1,122.41
894.57
964.55
4,324.64
1,769.93
1,434.14
1,126.27
1,222.68
5,553.03
7,706.43
8,549.55
9,330.31
10,015.43
3.11%
2.73%
2.24%
2.16%
2.20%
2.20%
2.20%
2.20%
2.20%
2.45%
2.45%
2.45%
2.45%
2.45%
3.05%
3.10%
3.15%
3.20%
11,740.00
18,385.00
33,790.00
55,241.00
18,460.63
16,246.11
13,122.81
13,693.97
59,724.21
21,082.41
17,903.93
14,130.79
14,383.14
65,466.49
74,804.96
81,865.07
88,059.48
93,059.04
% Revenue
27%
28%
31%
35%
30%
32%
32%
31%
30%
29%
31%
31%
29%
29%
30%
30%
30%
30%
Interest Expense
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
(326.00)
(155.00)
(415.00)
(522.00)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(.76%)
(.24%)
(.38%)
(.33%)
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
12,066.00
18,540.00
34,205.00
55,763.00
18,460.63
16,246.11
13,122.81
13,693.97
59,724.21
21,082.41
17,903.93
14,130.79
14,383.14
65,466.49
74,804.96
81,865.07
88,059.48
93,059.04
28.12%
28.42%
31.60%
35.63%
30.24%
31.84%
32.27%
31.23%
30.38%
29.18%
30.59%
30.74%
28.82%
28.88%
29.61%
29.68%
29.73%
29.73%
3,831.00
4,527.00
8,283.00
14,030.00
4,799.76
4,061.53
3,280.70
3,423.49
14,931.05
5,270.60
4,475.98
3,532.70
3,595.79
16,366.62
18,701.24
20,466.27
22,014.87
23,264.76
Earnings Before Interest & Taxes
% Revenue
Other Income And Expense
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
31.80%
24.40%
24.20%
25.20%
26.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
25.00%
8,235.00
14,013.00
25,922.00
41,733.00
13,660.87
12,184.58
9,842.11
10,270.48
44,793.15
15,811.81
13,427.95
10,598.09
10,787.36
49,099.87
56,103.72
61,398.80
66,044.61
69,794.28
19%
21%
24%
27%
22%
24%
24%
23%
23%
22%
23%
23%
22%
22%
22%
22%
22%
22%
734.00
1,027.00
1,814.00
3,277.00
661.05
743.06
824.36
905.87
4,933.65
1,348.80
1,442.30
1,522.10
1,611.52
7,958.50
9,713.15
11,628.37
13,685.32
15,858.81
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
8,969.00
15,040.00
27,736.00
45,010.00
14,321.91
12,927.64
10,666.46
11,176.35
49,726.81
17,160.61
14,870.25
12,120.19
12,398.87
57,058.37
65,816.87
73,027.18
79,729.93
85,653.09
25.17%
26.05%
26.48%
26.92%
27.37%
54,980.70
53,902.42
52,377.54
60,858.84
60,858.84
65,871.16
71,428.56
75,410.08
78,436.14
20.90%
23.06%
25.62%
28.76%
23.46%
25.34%
26.23%
25.49%
25.30%
26,292.00
30,417.00
35,173.00
46,907.00
52,786.12
50,237.54
49,327.14
54,831.17
54,831.17
61.28%
46.63%
32.49%
29.97%
86.46%
98.47%
121.31%
125.06%
27.89%
76.11%
92.08%
113.94%
121.95%
26.85%
26.07%
25.90%
25.46%
25.06%
11,506.00
20,722.00
27,970.00
38,542.00
46,788.89
44,502.67
41,453.51
48,178.88
48,178.88
54,106.84
49,971.08
46,698.18
55,757.15
55,757.15
61,115.37
66,092.03
69,967.64
72,259.50
26.82%
31.77%
25.84%
24.63%
76.64%
87.23%
101.95%
109.89%
24.51%
74.90%
85.37%
101.58%
111.73%
24.60%
24.19%
23.96%
23.62%
23.09%
14,786.00
9,695.00
7,203.00
8,365.00
5,997.23
5,734.87
7,873.62
6,652.30
6,652.30
873.85
3,931.34
5,679.36
5,101.69
5,101.69
4,755.79
5,336.53
5,442.44
6,176.65
34%
15%
7%
5%
10%
11%
19%
15%
3%
1%
7%
12%
10%
2%
2%
2%
2%
2%
(5,091.00)
(2,492.00)
1,162.00
(2,367.77)
(262.36)
2,138.75
(1,221.33)
(1,712.70)
(5,778.44)
3,057.48
1,748.02
(577.67)
(1,550.61)
(345.90)
580.74
105.91
734.21
1,144.00
2,005.00
4,260.00
8,295.00
2,825.00
2,825.00
2,825.00
2,825.00
11,300.00
3,973.32
3,219.49
2,758.22
3,094.13
13,045.17
15,160.20
16,547.51
17,772.02
18,778.94
2.67%
3.07%
3.94%
5.30%
4.63%
5.54%
6.95%
6.44%
5.75%
5.50%
5.50%
6.00%
6.20%
5.76%
6.00%
6.00%
6.00%
6.00%
638.00
244.00
350.00
152.63
127.55
101.66
109.61
491.44
180.61
146.34
114.93
124.76
566.64
631.67
689.48
740.50
782.46
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
0.00%
.98%
.23%
.22%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
.25%
7,825.00
17,488.00
25,724.00
35,203.00
13,712.06
10,237.45
5,601.06
9,463.07
39,648.07
18,785.12
8,446.93
7,499.03
9,757.65
44,997.17
50,370.90
55,209.44
61,111.50
65,357.48
13,424.11
9,812.00
5,255.56
8,692.88
16,893.85
7,436.97
6,463.76
8,233.96
39,045.83
39,313.35
39,974.34
39,272.21
Beta
SD
Implied Price
Weighting
1 Year Daily
1.04
20.00%
1 Year Weekly
1.08
30.00%
3 Year Daily
0.92
30.00%
3 Year Weekly
1.10
20.00%
Apple Inc. Beta
1.028
Terminal Growth Rate
Adjusted Beta
Beta
923
2.0%
2.5%
3.0%
3.5%
4.0%
0.83
858.74
888.80
923.13
962.73
1008.91
0.93
858.74
888.80
923.13
962.73
1008.91
1.03
858.74
888.80
923.13
962.73
1008.91
1.13
858.74
888.80
923.13
962.73
1008.91
1.23
858.74
888.80
923.13
962.73
1008.91
Growth Rates
› 4% intermediate growth rate used. Chosen to create
smooth transition to terminal growth rate
› 3% terminal growth rate used to project future economic
growth into perpetuity
DCF Valuation
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
% Equity
25.00% Terminal Growth Rate
1.69% Terminal Value
1.03 PV of Terminal Value
7.00% Sum of PV Free Cash Flows
3.00%
1,165,878
458,249
405,395
100.00% Firm Value
863,643
% Debt
0.00% Total Debt
0
Cost of Debt
0.00% Cash & Cash Equivalents
CAPM
8.86% Market Capitalization
WACC
8.86% Fully Diluted Shares
30-Yr WACC
10,746
874,389
947
10.03% Implied Price
923
Current Price
584.78
Undervalued
57.86%
Comparable Analysis
› Comparable companies screened for: similar product
offerings, market capitalization, growth rates, risk, and
capital structure
› Google (50%), Samsung (30%), Microsoft (20%0,
Amazon.com(0%)
Metrics/Multiples
› EV/EBITDA weighted at 50% because it captured the
entire relative valuation of comparable
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Overvalued
Implied Price
Weight
536.41
0.00%
403.54
20.00%
636.00
20.00%
561.14
50.00%
658.41
0.00%
$701.40
10.00%
$558.62
584.78
(4.47%)
Final Valuation
Final Price Target
Implied Price Weight
Discounted Cash Flows
$923.13
40%
Comparable Analysis
$558.62
60%
Current Price
$589.36
Final Price Target
$704.43
Recommendation
› Based on my current valuation I recommend a hold of
Apple stocks for both portfolios
› Apple’s is viewed as a premium product by all consumers
and is positioned well to capitalize on international
expansion, especially in China
Questions?