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Current Price: 165.21 Target Price: $167-$189
Krause Fund Research, April 16, 2023
Analysts: Steven Danna, Tristen Gile, Kyle Brosnahan, Charlie Fair
Contact: steven-danna@uiowa.edu | tristen-gile@uiowa.edu
kyle-brosnahan@uiowa.edu | charles-fair@uiowa.edu
Stock Rating
HOLD
Apple, Inc. (NASDAQ: AAPL)
We recommend a HOLD rating as our projected upside is between 0.01%
- 14%. This is due to robust growth in the wearables & services segment,
innovation of mature products, and a lengthy track record of success.
Drivers of Thesis:
Growth of Services & Wearables: The current industry trends
allow Apple to capitalize on current and future services, as well
as introduce and innovate new wearable products.
Innovation of Mature Products: With over 55,000 patents in
use, Apple is able to continue to produce top-of-the-line
products while introducing new features across product lines.
Track Record of Success: Apple is the most dominant company
in the consumer technology space, and regardless of economic
or market conditions, it has grown robustly year after year.
Risks of Thesis:
Current Economic & Market Conditions: With rising interest
rates and looming recession fears, consumer spending in the
short-term could fall materially, hindering Apple’s revenue
growth in 2023 & 2024.
Supply Chain Issues: First observed in 2020, supply chain issues
abroad, especially as it relates to geopolitical tension in the
Asia-Pacific, could dampen production efficiency of products
throughout Apple.
Technology Startups: More recently, a rise in new technology
startups has applied pressure on Apple to continue to innovate
new products.
Company Description:
Apple, Inc. engages in the design, development
and manufacturing of electronic devices and
services. Apple produces and sells smartphones,
tablets, personal computers, wearables, and a
variety of related services. The company was
founded in 1976 by Steve Jobs and is
headquartered in Cupertino, California, where
Apple has become a world leader in consumer
technology innovation.
Valuation Models
DCF: $167
Relative Valuation: $189
DDM: $143
Price Data
Current Price: $165.21
52 Week Range: $124.17-$176.15
Current P/E: 28.08
Key Statistics
Market Capitalization: $2.61T
Shares Outstanding: 15.94M
2022 EPS: $6.15
2023E EPS: $5.65
Beta: 1.23
WACC: 9.2%
Financial Profile
2022 Revenue: $365,817M
2023E Revenue: $387,678M
2022 Net Income: $99,803M
2023E Net Income: $88,516M
2022 Gross Profit Margin: 43.4%
2023E Gross Profit Margin: 43.3%
Earnings Estimates
3-Year Stock Performance vs. S&P 500
Snapshot
Investment Thesis
AAPL
SPY
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Apple, Inc. (NASDAQ: AAPL) is an American based
technology company headquartered in Cupertino,
California. Apple is a global leader in the technology
space, producing and selling electronics, software, and
other online services. The company’s electronic products
consist of smartphones, tablets, computers and
wearables while other online services include iTunes,
Safari Media, and the Apple Card payment service. The
company operates globally and has hundreds of brick-
and-mortar stores throughout the world.
By delivering constant innovation with its devices and
services and providing products of the highest quality,
our team believes Apple will continue to be a market
leader in the technology hardware and consumer
electronics space. Apple has created an ecosystem of
technology at an affordable price point to the consumer,
further supporting its continued growth over the months
and years to come. With a $2.56 trillion USD market cap,
Apple is the most valuable company in the entire world.
Possessing the strongest brand name of our generation,
as well as innovating and producing the most sought-
after technology, Apple has positioned itself as the
preeminent force in the technology industry.
Economic Outlook: Neutral
Over the last year, interest rates have continued to rise
to combat the recent, aggressive rise in inflation. We
believe that the federal reserve will begin to cut the
benchmark federal funds rate within the next 6-12
months, which will result in an overall rebound for the
economy. As the cost of borrowing decreases, real GDP
will rise, but at a slower rate than previous periods. As
real GDP rises and interest rates fall, consumer
confidence will begin its return to pre-pandemic levels
resulting in more disposable income for the consumer.
Interest rates have been on the rise as the Federal
Reserve has been attempting to combat record inflation
over the past year. An interest rate is the amount a
lender charges a borrower for any form of debt and is
shown as a percentage of the principal amount loaned.
As the federal funds rate rises, the 10-year government
bond yield follows. Throughout the pandemic, the 10-
year was charted as low as 0.0504%
1
, as the Fed was
attempting to stimulate the economy with lower rates.
Source: FRED
1
The technology sector has been negatively impacted by
these rising rates. Higher interest rates raise the
weighted average cost of capital for companies, making
new projects and expansion efforts more expensive to
finance. Rising interest rates have also contributed to
consumer demand decreasing, which impacts the sales
of many large, technology-based companies as the
consumer is less inclined to be making these
discretionary technology purchases in a slowing
economy.
More recently, it is believed that interest rates have hit
the peak and will begin to steadily decline as inflation
continues to slow. We forecast that the technology
sector will respond well to the decrease in interest rates.
We have estimated that interest rates will have a target
range of 3.75% - 4.00% within twelve months. These
lower rates will allow the consumer to be comfortable
with discretionary spending, allowing for more demand
within the sector. This aligns with our revenue forecast,
as sales decline for FY23, but return to steady growth in
2024 and beyond.
Real GDP is an inflation adjusted measure of the value of
goods and services produced by a country each year.
Historically, the technology sector outperforms the
market when economic productivity increases. In both
Q3 and Q4 2022, real GDP increased by 3.2% and 2.6%
respectively. Estimates for Q1 2023 GDP sit at a 2.2%
increase as of April 10
th
.
2
As GDP continues to rise, so does the technology sector.
The NASDAQ, a major index that is weighted heavily by
large-cap technology stocks, is up 16% YTD. This shows
Executive Summary
Economic Analysis
Interest Rates
Real GDP
3 | Page
that the technology sector has rebounded after a steep
decline in early 2022. We believe that the continued rise
in real GDP will promote more discretionary spending,
paired with low unemployment will ease any stagnation
within the sector.
Throughout our model, we have an optimistic outlook
regarding real GDP growth. We forecast real GDP to grow
between 0.2% - 0.5% in FY 2023 before returning to
normalized growth of 2.5% in 2024. With this estimated
growth, stronger revenue will follow along with more
opportunities for reinvestment to fund future growth.
Source: FRED
3
The consumer price index is a measure of the average
change over time of prices that the consumer pays for a
basket of goods and services. As of March 2023, CPI has
risen 5% year over year.
4
This shows that inflation is still
rising, and the dollar has lost some of its purchasing
power.
Source: CPI
5
Specifically for Apple, a rise in CPI can be treated as a
double-edged sword. With the consumer being
comfortable spending upwards of 5% more on certain
goods than the same time last year, Apple may begin to
show an uptick in the prices of the products and services
that they provide. However, on the flip side the
consumer may believe that the current price of Apple’s
goods is already too high and may not be comfortable
with further price increases. Moreover, increasing input
prices for Apple’s products could hurt margins if they are
unable to pass along these price increases to the
consumer.
We estimate that the CPI will be stubborn, before then
decreasing at roughly 0.2% per month. This will be due
to the Federal Reserve’s attempt to restore price stability
by decreasing inflation with tighter monetary policy and
previous rate hikes.
The Consumer Confidence Index reflects prevailing
business conditions, customer attitudes, and buying
intentions. This index is an important indicator when it
comes to the discretionary spender, and if they are
comfortable spending money on what are deemed “non-
essential” items like new pieces of technology.
The latest CCI reading came in at 104.2 in March, a one-
point increase month-over-month, with 1985 being the
base year of 100.
Source: TheConferenceBoard
6
We believe that consumer confidence and spending is
beginning to return to historical levels that have been
observed pre-pandemic. We believe that as this index
continues to rise, we will see growth across the economy,
and more specifically the technology sector.
As CCI continues to rise, many large-cap technology
companies will begin to witness increased demand,
spurring growth across the sector. We expect the sector
to see strong returns and influence the overall economy
along the way.
The United States unemployment rate is a measure of
the portion of labor force in the United States that is
CPI
Consumer Confidence Index
Unemployment Rate
4 | Page
currently jobless. Lower unemployment within the US
economy is a sign of strength, but also can be a sign of
reduced worker participation. Currently, the
unemployment rate is at the lowest rate in over 50 years,
declining from 3.6% in February to 3.5% in March of
2023.
7
The unemployment rate is a key variable for the
technology sector because as more people become
employed, discretionary spending will increase, resulting
in more goods sold and higher profits for these
companies. We believe that unemployment will remain
between 3.7% - 4.0% over the next 1-2 years, as people
are continuing to return to work and companies are
operating at full capacity. This will result in growth for
not only the overall economy, but for the technology
sector as well. We do project a slight uptick in
unemployment as a pandemic era over hiring is dealt
with and businesses cope with higher costs of borrowing.
Industry Outlook: Positive
We have a positive outlook for the technology hardware
industry. We believe that as the economy works its way
away from recession fears, the entire industry will
continue to rebound. Companies will flourish with
innovation opportunities and expand on emerging and
future trends. Apple specifically has targeted much of its
recent research and development to emerging trends in
the technology hardware industry. Apple has targeted
trends in the consumer end-markets of smartphones,
PCs, and gaming with the development of a mixed reality
headset.
The information technology sector is made up of a
handful of major industries such as technology hardware,
technology services, data storage, and semiconductors
and semiconductor related equipment. The industry is
divided into two main categories: hardware and
software. On the hardware side, companies produce and
sell tangible goods to the consumer, such as mobile
phones, computers, tablets, and other wearables. On the
software side, companies develop software systems,
applications, databases, and data processing systems.
Apple is engaged in both sides of the information
technology sector, but is classified in the technology
hardware, data storage, and peripheral sub-industry.
Within this sub-industry, Apple produces everything
from tangible products like the iPhone and iPad to
software systems such as IOS and MacOS.
Source: CFRA Company reports
8
Peripheral Wearables
The technology hardware industry is ever-changing due
to consumer demands which results in constant
innovation. As we highlighted above, one of the major
trends that Apple has been able to capitalize on is the rise
of peripheral wearables. Items like Bluetooth
headphones and smart watches have been at the
forefront of consumer purchases. For many technology
hardware companies, these peripherals have been the
highest growth segments within the company.
Apple has been a leader in this trend, as they have
released new wearables each year, for over eight years.
More specifically, Apple has focused on the Apple Watch
and AirPod product lines. Apple currently has five
different smartwatches, with watches made specifically
for different activity levels, professional settings, and
everyday wear. AirPod’s are quickly gaining traction, as
Apple has released three different models at various
price points. We believe that Apple will continue to
capitalize and drive this trend through further innovation
and the upgrades of current wearables throughout the
product lines.
5G Connectivity
5G connectivity is the latest and most advanced
technology for wireless communication systems. These
networks are designed to provide faster speeds, lower
latency, and greater capacity than previous generations.
5G is growing increasingly popular due to the ultra-fast
speeds it provides, as well as advanced cybersecurity
measures. As almost every major cellular provider is
Industry Analysis
Industry Description
Industry Trends
5 | Page
shifting focus to 5G, it is essential that technology
hardware companies create products that can handle
the new systems.
Since the first 5G network was introduced in 2019,
technology companies have had to adapt to
unprecedented demand for devices that contain the 5G
SIM processor. Apple has introduced four different
iPhones that support 5G connectivity, the iPhone SE
(2022), 12, 13, and 14. These devices are produced and
designed specifically for 5G connectivity. Since this trend
is relatively new however, there are two major
downsides associated with it. The first being the lack of
5G locations throughout the world, and more specifically
the United States. Infrastructure for 5G is extremely
expensive, and since it is still relatively new, many
contracting companies are still in the process of covering
much of the United States and other countries.
Throughout the next 2 - 4 years, we estimate that almost
100% of the United States population will have access to
5G networks, as infrastructure is being added each day.
Threat of New Entrants: LOW
The threat of new entrants is low throughout the
industry itself. Large companies that are well established
dominate the majority of the market share. These
companies have the resources to continue to innovate,
research, and develop new products and services. This is
due to the sheer amount of capital within these
companies, who can invest that capital in prototypes and
eventually new products.
Startups and newer companies will have a harder time
succeeding, as many don’t have the funding available for
the required research and development needed to
produce a product unlike a current one. New products
from these companies will ultimately have a harder time
selling, as the consumer is typically loyal to a given
company that is well established in the space.
Threat of Substitute Products: LOW
The threat of substitute products within the industry is
extremely low. Currently, there are no products that
pose a threat to the industry in any regard. Smartphones,
handheld tablets, and computers are an essential to
everyday life, and will continue to be upgraded in the
years to come. There are no new products being
produced or rumors of a product that could threaten
these products in any way down the line.
Bargaining Power of Buyers: MODERATE/HIGH
The bargaining power of the buyer within this industry is
moderate to high. As there are many companies who
ultimately produce the same product lines, it offers the
buyer options as to which product feels best. The buyer
dictates innovation and development for most of the
products produced within the industry through demand
for certain features and feedback on owned products.
Buyers can also have an influence on the prices of
products throughout the industry. Today’s consumers
are easily able to share their opinions and thoughts
online, which can lead to companies adjusting their price
points to meet the needs of the consumer in order to
retain a strong customer base.
Bargaining Power of Suppliers: MODERATE
The bargaining power of suppliers has become moderate
due to the geopolitical factors associated with them. We
have seen a recent shift in bargaining power because of
supply chain issues related to the COVID-19 pandemic.
Many larger companies have expressed interest in
finding suppliers that are in closer proximity to the
company, rather than having a supplier who may be
overseas. This gives power to the supplier, as they are
able to dictate where and how they do business around
the globe.
The supply chain is essential for all companies that
produce goods and services. Larger companies that
require more and more supplies for their products have
been negatively impacted by prior lockdowns in China
and other Asia-Pacific countries. These effects were
shown over the course of Apple’s latest iPhone release,
as sales and product numbers declined dramatically.
Rivalry Among Existing Players: MODERATE
Rivalry among the existing players in the industry is
moderate. Many of the top players create and sell the
same products. Creating and selling the same products is
bound to lead to competition as companies are
continuing to gain the competitive advantage.
Companies will continue to compete as the products
continue to undergo innovation.
Brand loyalty is often associated with rivalries within the
industry. To an extent, this lowers the rivalry between
Porters Five Forces
6 | Page
top companies, although companies attempt to convert
the consumer with every new product release. The
rivalry we be moderate for years to come, as the leaders
in the industry will continue to compete over future
products.
Apple’s main competitors within the technology
hardware industry are Hewlett Packard (HP), Samsung,
and Dell. Within this industry, Apple is the clear leader
due to the sheer size and reach of the company. Apple’s
revenues approached 395 billion dollars in 2022, 47%
higher than Samsung, who brought in 244 billion
20
. Dell
and HP had revenues of 105 billion
21
and 63 billion,
respectively. Apple is generating upwards of six times the
revenue of HP and almost 4 times the revenue of Dell,
which leads us to the conclusion that the closest
competitor within the industry is Samsung.
9
Currently, Apple’s EV/EBITDA multiple is at 19.3x, while
Samsung, HP, and Dell’s multiples all fall between 3-6x.
Apple also trades at a 26.2x price-to-earnings ratio, the
highest of the group. Lastly, the market capitalization of
Apple is over 2.4 trillion dollars, almost five times the
486.5-billion-dollar market cap of Samsung. Dell and HP
have market capitalization of 31.38 billion and 20.61
billion, respectively.
9
These metrics and financials show
that Apple is the clear leader in the industry due to the
amount of cash flow that is generated in comparison to
its peers. We feel that due to the sheer size of Apple, its
competitors lie outside of the technology hardware
industry.
Source: Factset
9
As Apple is currently the world’s largest company in
respect to market capitalization, we felt that for
valuation purposes, Apple should be compared to other
major players throughout the technology sector. Apple’s
product lines span into several different sub-industries,
which brings larger companies into play. In regard to
Apple’s line of tablets and laptops, Microsoft (MSFT),
offers multiple products that directly compete with
Apple’s devices. Safari, the search engine owned and
operated by Apple, competes for the most used web
browser against Alphabet’s (GOOGL) Google Chrome.
Lastly, Apple’s streaming service, Apple TV, competes
directly with Netflix (NFLX) and Amazon (AMZN) in
respects to the streaming services offered.
Overall, we feel as if these companies are more closely
related and competitive to Apple. Each of these
companies have a large market cap, with Microsoft,
Google, and Amazon having over a trillion in total
capitalization. Having companies with similar financial
profiles is essential for proper valuation, and these four
companies make for a better overall valuation.
Apple is a technology hardware and consumer
technology giant, operating out of Cupertino, California.
While Apple operates out of California, its reach expands
throughout the Americas, Europe, Asia Pacific regions,
and Japan. Revenue for Apple is consistently led by the
sale of the iPhone, followed by the iPad, MacBook, Air
Pod, and Apple Watch product lines. Alongside these
products, Apple provides a variety of services with its
iTunes & Safari Media systems, as well as the ever-
growing Apple Pay & Apple Card technologies.
Apple seeks to differentiate its products from its
competitors by designing nearly every aspect of their
products and software applications. The company has a
plethora of patents, designs, copyrights, and trademarks
that are unique to their products. However, the nature
of the business still requires high levels for R&D to
support the continued development of cutting-edge
products. Below is a product and services breakdown for
Apple.
Industry Competition
Company Analysis
7 | Page
Source: Apple 10-K
10
The graphs shown above depict Apple’s geographical
breakdown around the world, as well as the product
segment sale breakdown.
iPhone
iPhones are the smartphones within the Apple
Ecosystem. The newest iPhone models are the iPhone 14,
14 pro, and 14 pro max. Over the last five years, iPhone
sales have grown at roughly 9.5% since 2018, with
notable 39.33% growth in 2021.
11
This extreme growth is
attributed to the release of the iPhone 13 and 13 Pro Max.
More recently, iPhone sales have declined due to chip
shortages in China where necessary processors are being
assembled. This in turn created a supply chain disruption,
and the iPhone 14 was backordered for months, resulting
in an 11% decrease in sales for the newest model.
12
Due to the chip shortage, ever shifting market conditions,
and consumer sentiment, we have forecasted iPhone
sales to fall another 2.67% in FY 2023 but recover at an
11% growth rate in 2024. This growth is due to the
consumer purchasing the new iPhone, which is slated to
be released in the 4
th
quarter of 2023. We believe that as
the iPhone becomes a more mature product, growth will
be moderate over time as current users upgrade their
device and new users join the ecosystem. Currently,
there are over one billion active iPhone users, with the
number continuing to rise year after year.
Source: Statista
13
iPad
The iPad is Apple’s handheld tablet product line that
consists of the iPad Pro, iPad Air, iPad, and iPad Mini.
Over the last five years, iPad sales growth has grown at
an average of 10.3%, with notable gains in 2021 with the
release of the 9
th
generation iPad, which has been
deemed the most “affordable” iPad. However, in 2022,
sales declined by roughly 8% year over year.
9
We believe
this is due to the lack of new developments to the iPad
itself.
Source: CFRA, company reports
8
Our group has estimated for iPad growth to continue the
decline throughout 2023, falling at 5.51% year over year.
Because the iPad is also a mature product within Apple’s
product line, we estimate that in 2024 and beyond, sales
growth will rise by over 10% in 2027E, and then begin to
taper off as we approach CV. This can be attributed to
the slower innovation of new technologies within the
iPad product line.
Mac
Mac is Apple’s product line of personal computers. The
Mac runs on Apple’s MacOS operating system, which is
comparable to the IOS systems of the iPhone and iPad.
The Mac line itself is led by the MacBook Pro and
MacBook Air, followed by Apple’s desktops: iMac, Mac
Mini, Mac Pro, and Mac Studio. In the past five years, the
Mac line has growth at an average of 9%, with its highest
Product Segments
8 | Page
growth coming in 2020 and 2021 due to the shift in
online meetings and the growing work from home
environment which can be attributed to the COVID-19
pandemic.
9
We have forecasted Mac sales to decline by 16.62% in
2023, as we believe that the consumer is less inclined to
upgrade a newly purchased Mac from years prior.
Following 2023, we have projected a rebound in growth
of 7.46%, followed by a steady decline which can be
attributed to more PCS entering the market, and a longer
battery and screen life due to the increasing quality.
Source: CFRA, company reports
8
Music, Wearables, and Other Accessories
Apple produces a variety of accessories in addition to the
iPhone, iPad, and Mac products. The main accessories
that are produced fall into three different categories:
Apple Watch, Apple Tv, and Air Pods/audio devices. The
Apple Watch is a smartwatch that is produced by Apple
and is adapted specifically for the consumer, with models
ranging from the Apple Watch Ultra, Series 8, SE, Nike,
and Hermes. Apple Tv is Apple’s streaming service, which
turns any Tv with HDMI connectivity into a smart TV with
the Apple TV HD and 4K models. AirPods, Apple’s
wireless headphone line includes the AirPod Max, AirPod
Pro, and AirPod. Continuing with audio products, Apple
also has the HomePod wireless speaker and sells Beats
headphones as well.
The accessories segment has had the largest average
growth over the last five years at 27%.
9
This can be
attributed to the growth of Bluetooth technology
throughout the audio industry. In 2022 however, growth
declined to just under 7.5%, which we believe is linked to
overall decreased discretionary spending. As the
economy strengthens, we anticipate a higher growth
period since these products are still relatively newer and
can still grow in the market. Our estimated growth rate
in 2023 is 3%, with its peak growth estimated at 17%
within our model when the accessories segment matures.
Source: Morgan Stanley Research
14
Services
Apple offers multiple services that are accessible
throughout their physical products. These services
include Apple Pay and Apple Card, Apple Care, iCloud,
iTunes, and other advertisement services. Apple Pay is a
form of cashless payment in which the consumer loads
credit cards into the Wallet application on the iPhone.
More recently, Apple debuted the Apple Card, a branded
credit card to go alongside Apple Pay. Apple Care is a paid
for service that allows the user to gain access to priority
access to technical support and repair services. The
iCloud service stores the user’s media and data
throughout all Apple devices as well as providing system
backups to protect and encrypt data. iTunes provides the
subscription-based Apple Music and Apple Arcade
services where the user has unlimited access to music
and select games available to download. Lastly, Apple
provides advertising services to both third-party vendors
as well as in house advertising platforms.
Service revenue for Apple has grown at just over 19%
over the last 5 years, with 2022 coming in at 14.2% year
over year.
9
Our group anticipates steady growth in the
years to come, although Apple is facing heavy pressure
from outside competitors. We believe that the Service
segment within Apple will generate the most growth
throughout our model, as the segment is still relatively
new and poised for innovation throughout.
Just over 18% of Apple’s total device installed base have
subscriptions to Apple services such as Apple Music,
iCloud, and Apple Pay.
18
This business segment has a high
ceiling for growth.
9 | Page
Source: Business Strategy Hub
15
Strengths
Apple’s largest asset is the brand value and name itself.
Throughout 2022, 51% of Americans used or owned an
iPhone, iPad, or Macbook.
16
Having a market share of this
size is due to almost two decades of consistent
innovation within Apple’s products. The consumer is
confident that a new Apple product will be the highest
quality device on the market that also functions
extremely well. Apple has over 55,000 active patents
17
,
allowing for constant innovation throughout its products
and in turn staying one step ahead of its competitors.
Another strength that Apple possesses is its brand
marketing approach. Apple releases and markets new
products that follow a consistent schedule each year.
With heavy marketing throughout Q2 and Q3 promoting
the newest product, Apple has garnered interest from
consumers across the globe. Following a strong season of
marketing, Apple will present their newest products at a
keynote presentation in late September, allowing for
pre-ordering to take place shortly after.
Apple has continued to capitalize on the services offered
under the Apple ecosystem. Subscription based services
such as Apple Music and Apple Care are continuing to
grow as the consumer is presented with more
information. These services also offer a relatively basic
and consistent business model with steady revenues as
the customer is subscribed for a set period of time before
either renewing or cancelling their service.
Weakness
Recently, the rise of counterfeit products, specifically
Apple smartphones and tablets, have been on the rise.
This takes place primarily outside of the United States,
which makes it harder for Apple to monitor and intercept
these counterfeit goods. With such a recognizable brand
name and logo, making an identical product is incredibly
easy, which leads to revenue going to companies that are
producing these products.
Apple’s main weakness is the operating system that all
Apple products run on. Whether it’s IOS or MacOS, all of
the information and data is monitored and stored by
Apple. This causes the consumer to rely on Apple
products, as their information will not be available on
other non-Apple devices. As many users want a seamless
transition between Apple and non-Apple devices, they
may choose to pursue a different technology system that
has outsourcing for operating systems.
Opportunities
Apple’s focus to grow the services offered presents many
opportunities, one of which being the Apple Pay and
Apple Card systems. With the addition of the Apple Card,
Apple has just released its newest service, “Apple Pay
Later”. This allows the consumer to take out a loan on a
purchase that is then paid back over four installments
over six weeks. Since this service was released at the end
of Q1 2023, there is still an opportunity to expand into
higher payments and longer loan periods.
The ever-growing artificial intelligence within technology
allows Apple to continue to upgrade the AI systems
embedded in their products. Rumors have surfaced
regarding new FaceID capabilities, with deepened retina
scans for more security. Apple has also been working on
artificial intelligence that can be used in the Apple Car, a
fully autonomous vehicle that is rumored to be launched
in 2026.
Another opportunity that Apple has expressed interest in
is the possible expansion of production, as well as brick
and mortar stores into India. Currently, they are planning
on opening upwards of 100 stores
22
throughout the
country, therefore increasing the number of users
around the country. Along with opening stores, Apple
claims that the move to India could ultimately increase
iPhone production by 2-3x, as supply chain issues could
be eased.
SWOT Analysis
10 | Page
Threats
The United States – China relationship has continued to
be shaky at times, which has a direct impact on Apple.
Apple sources all of the chips and processors essential for
the technology from China, and more specifically, Taiwan
Semiconductor Manufacturing company.
Over much of 2022 and into 2023, we saw geographical
reach dwindle due to the COVID-19 pandemic. With
these countries being placed in a lockdown by their
respective governments, Apple was faced with an
extreme supply chain disruption which resulted in less
physical sales. To avoid this in future lockdowns, Apple
may have to produce products in the United States or
neighboring countries.
Technology startups have led innovation throughout the
growing technology sector. This has led to pressure for
Apple specifically, as they have been deemed the
industry leader. Staying on top and ahead of innovation
is costly and could ultimately raise the prices of products
if newer tech startups continue to innovate.
Revenue Decomposition
Apple’s revenue is broken up into five different segments:
iPhone, iPad, Mac, Wearables & Accessories, and
Services. We have forecasted revenue to decline for the
iPhone, iPad, and Mac segments and growth throughout
the Wearables and Services.
More specifically, we have forecasted sales for the
iPhone to decrease by 2.67%, iPads decreased 5.51%,
and Macs decreasing by 16.62%. Services and Wearables
grew at 7.5% and 3.05%, respectively. We have
estimated that 2024E will be a high growth year for the
iPhone, Services, and Wearables sectors due to
innovation within these products.
Due to current macroeconomic factors, we believe that
Apple’s revenue growth in 2023E will decline overall by
roughly 1.69%. Some factors that will cause this decline
in growth are rising interest rates, inflation, and supply
chain issues abroad. While these factors are influencing
2023E, we expect them to slowly ease throughout late
2023 and early 2024.
Cost Of Sales
All of Apple’s selling costs have been estimated using a
two-year historical average, as there is no clear guidance
from official Apple management with how costs are
broken down. This results in the cost of sales being
straight lined at 64% for products and 29% for services.
Research & Development
Research and Development is essential for companies to
continue growth with new products and services, and we
have estimated that R&D will continue to grow at roughly
6% year over year. This number was computed using
historical averages, as we believe that Apple will
continue to produce the same number of products in
years to come.
Cost of Equity
To calculate the cost of equity at 9.45%, we used the
Capital Asset Pricing Model. The Capital Asset Pricing
Model or CAPM, is calculated using the risk-free rate, raw
beta, and the current equity risk premium. Our risk-free
rate used was 3.45%, the current rate of the 10-year US
treasury. For Apple’s Beta, we used the 5-year monthly
raw beta of 1.23, which represents Apple’s volatility in
comparison to the market. Lastly, we used Damodaran’s
trailing 12-month implied equity risk premium of 4.88%
19
,
as of April 1, 2023. The beta and equity risk premium
were multiplied and then added to the risk-free rate to
give us our 9.45% cost of equity.
Cost of Debt
To find our cost of debt at 3.35%, we first needed our
pre-tax cost of debt. Our pre-tax cost of debt was 4.71%,
which was found by finding 10-year Apple corporate
bonds. The default premium is calculated by subtracting
the 3.45% risk-free rate from the pre-tax cost of debt
that was found. Finally, we multiplied Apple’s pre-tax
cost of debt by 0.7113, which is the marginal tax rate of
28.87% subtracted from 1, to arrive at our after-tax cost
of debt of 3.35%.
WACC
To arrive at our Weighted Average Cost of Capital (WACC)
of 9.2%, we first had to identify the capital structure that
Apple is made up of. We calculated the weight of equity
to be 95.63%, which was found by multiplying the total
Overall Valuation Analysis
11 | Page
shares outstanding (15.94 million) by the current stock
price (165.21 as of 04/14/23) to equal 2,634.01 million.
Next, the weight of debt was determined to be 4.37%.
This was calculated by adding the current portion of long-
term debt, long term debt, and the present value of
operating leases, which equaled 120.44 million.
Following this step, we added both the market value of
equity and the market value of debt to equal 2,754.45
million, which was divided by our market value of total
debt (120.44). We then used these weights, along with
our calculated after-tax cost of debt (3.35%) and our cost
of equity (9.45%), to arrive at our final weighted average
cost of capital.
Discounted Cash Flow & Economic Profit Model
Implied Share Price: $167
Projection Period: 2023-2032
We believe that the Discounted Cash Flow and Economic
Profit models provide the best valuation for Apple. To
arrive at our calculation, we forecasted the three
financial statements in order to find our Free Cash Flow
values. These values are then discounted back to present
value using the 9.2% WACC. After adding these cash
flows together and making non-operating adjustments,
the value of equity was divided by the current shares
outstanding to end at an intrinsic share price of $168.
Our group is confident in the valuation provided by these
models. Apple is the world leader in technology sales,
which is reflected in the growth of the free cash flow
projections throughout the model. Our free cash flow
calculations have considered current macroeconomic
factors such as inflation, geopolitical risks, and other
challenges facing the economy.
Relative Price-to-Earnings Model
Implied Share Price: $127-$188
Projection Period: 2023-2024
Comparable Companies: Microsoft (MSFT), Alphabet
(GOOGL), Samsung (SMSN), HP (HPQ, and Amazon
(AMZN).
When analyzing Apple, it is incredibly difficult to find true
“comparable” companies for a variety of reasons. The
first being that no company on earth is as big as Apple,
and therefore will not have a financial profile that is
extremely similar. Second, Apple has expanded its reach
into multiple industries, therefore inviting more
companies to compete with them. We believe that the
companies selected provide the best valuation, as they
all compete with Apple in multiple different business
segments.
The relative P/E model produces a higher valuation than
all models observed in this report. We believe that while
the intrinsic valuation may be higher, it is still an accurate
valuation. Apple strives to provide returns to
shareholders which leads to an emphasis on the price-to-
earnings metric, therefore making this an accurate
valuation.
Dividend Discount Model
Implied Share Price: $143
Projection Period: 2023-2032
We put together Apple’s Dividend Discount Model by
projecting the company’s earnings per share into 2032E.
A major assumption we made was that Apple will
continue to increase dividends by $0.05 each year. By
discounting these dividends back to present value using
the cost of equity, as well as the future stock price, we
arrived at our implied share price of $143.
Our group believes that the Dividend Discount Model
provides an accurate intrinsic valuation of Apple. This
belief is supported with Apple’s goal of driving
shareholder value and having consistent EPS growth.
WACC & CV NOPLAT Growth
The first variables we chose to analyze were Apple’s CV
growth of NOPLAT and the Weighted Average Cost of
Capital. We chose these variables because they are the
two main inputs for the Discounted Cash Flow model.
The continuing value in our DCF model makes up a
majority of the total valuation, so it is essential to see
how changes in both of these variables affect our final
valuation model.
Valuation Models
Sensitivity Analysis
12 | Page
We estimated our CV growth rate to be relatively high, at
roughly 5%. While we understand this is high, we believe
that Apple has the resources and historical evidence to
back up this assumption. The sensitivity tested was CV
NOPLAT Growth between 3.5%-6.5% and WACC
between 8.8%-9.5%, which gave us an estimated price
between $128-$272.
Equity Risk Premium & Beta
We chose to analyze the effects of changing the Equity
Risk Premium and Apple’s beta together because they
are both included in the WACC calculation. With the
WACC being one of the biggest factors in determining the
intrinsic value of Apple, the effects of changing these
variables should be noted.
Our table consisted of the beta ranging from 0.93-1.53
and the Equity Risk Premium ranging from 4.58%-5.18%.
While Apple’s beta is relatively stable around 1.2, we still
believed it has room to adjust over time with ever-
changing market conditions. The equity risk premium is
constantly changing and could easily increase or
decrease within this range over the coming years. This
table estimated the stock price to fall between $114-
$282. While this is a large range, we believe that a
majority of these values are plausible in the years to
come.
Cost of Product Sales (%) & Cost of Service Sales (%)
When looking at the two biggest expenses throughout
Apple’s financials, the cost of both products and services
are at the top. These expenses are key to determining
margins, and we felt that they should be tested against
one another.
By using Apple’s discounted cash flow intrinsic valuation,
we used a range of 61.18%-67.18% for the cost of
products, and 26.26%-32,26% for the cost of services.
These expenses can fluctuate easily, especially with the
increasing supply chain shortages and other geopolitical
risks. By making these adjustments, we estimated the
stock price to fall between $148-$185, which is in line
with our estimates throughout the model.
Capital Expenditures & Net Margin
Capital expenditures are essential for growth within a
company, and Apple is no exception. Apple purchases
new infrastructure, warehouses, data centers, and other
investments that are beneficial for the company’s long-
term growth. We chose to compare the Capital
Expenditure rate, as a percentage of sales, to the Net
Margin of Apple.
Our sensitivity table values for CapEx and Net Margin
percentage ranged from 1.47%-7.47% and 6.37%-12.37%,
respectively. We felt that these ranges are feasible in the
sense that expenditure occurs extremely often for a large
company, which then has an impact on overall profit
margins. Our table suggests an estimated stock price of
$164-$169.
Cost of Equity & CV Earnings Per Share Growth (DDM)
When building a Dividend Discount Model, the two
biggest factors when projecting the final intrinsic share
13 | Page
price are the cost of equity and the CV earnings per share
growth. The CV earnings per share value is responsible
for the calculation of the future stock price, which is then
discounted by the cost of equity for the final cash flow in
year 2032E. This value is responsible for 92% of the
overall intrinsic valuation, therefore making these
variables incredibly important within the model.
When constructing our sensitivity table, our Cost of
Equity ranged from 9.15%-9.75% and our CV EPS Growth
ranged from 3.2%-3.8%. We believe that these
assumptions are easily within reach, and therefore
should be modeled within the table. With these
assumptions, the estimated stock price is between $127-
$162.
14 | Page
This report was created by students enrolled in the
Applied Equity Valuation class at the University of Iowa.
The report was originally created to offer an internal
investment recommendation for the University of Iowa
Krause Fund and its advisory board. The report also
provides potential employers and other interested
parties with an example of the students’ skills,
knowledge and abilities. Members of the Krause Fund
are not registered investment advisors, brokers or
officially licensed financial professionals. The investment
advice contained in this report does not represent an
offer or solicitation to buy or sell any of the securities
mentioned. Unless otherwise noted, the facts and figures
included in this report are from publicly available sources.
This report is not a complete compilation of data, and its
accuracy is not guaranteed. From time to time, the
University of Iowa, its faculty, staff, students, or the
Krause Fund may hold a financial interest in the
companies mentioned in this report.
Important Disclaimer
15 | Page
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Apple Inc.
Sensitivity Tables
166.55 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 166.55 6.37% 7.37% 8.37% 9.37% 10.37% 11.37% 12.37%
8.80% 146.38 156.44 168.83 184.49 204.89 232.57 272.30 1.47% 164.06 164.64 165.21 165.79 166.36 166.93 167.49
8.90% 143.41 152.98 164.73 179.49 198.59 224.28 260.68 2.47% 164.30 164.88 165.46 166.03 166.60 167.17 167.74
9.00% 140.55 149.67 160.81 174.75 192.66 216.55 249.99 3.47% 164.52 165.10 165.68 166.25 166.83 167.40 167.96
9.20% 135.13 143.43 153.49 165.95 181.77 202.54 231.00 4.47% 164.72 165.30 165.88 166.46 167.03 167.60 168.17
9.30% 132.56 140.48 150.06 161.85 176.76 196.17 222.53 5.47%
164.90 165.49 166.07 166.64 167.22 167.79 168.36
9.40% 130.09 137.65 146.77 157.95 172.00 190.19 214.64 6.47% 165.07 165.66 166.24 166.82 167.39 167.96 168.53
9.50% 127.70 134.93 143.61 154.22 167.49 184.54 207.28 7.47% 165.23 165.81 166.39 166.97 167.55 168.12 168.69
166.55 32.26% 31.26% 30.26% 29.26% 28.26% 27.26% 26.26% 142.71 3.20% 3.30% 3.40% 3.50% 3.60% 3.70% 3.80%
61.18% 174.07 175.85 177.62 179.39 181.17 182.94 184.71 9.15% 147.10 149.34 151.65 154.05 156.54 159.11 161.78
62.18% 169.80 171.57 173.35 175.12 176.89 178.67 180.44 9.25% 143.50 145.65 147.86 150.15 152.53 154.99 157.54
63.18% 165.53 167.30
169.07 170.85 172.62 174.39 176.17 9.35% 140.04 142.09 144.21 146.40 148.67 151.02 153.46
64.18% 161.25 163.03 164.80 166.57 168.35 170.12 171.90 9.45% 136.70 138.66 140.69 142.79 144.96 147.21 149.53
65.18% 156.98 158.75 160.53 162.30 164.07 165.85 167.62 9.55% 133.47 135.36 137.30 139.31 141.39 143.54 145.76
66.18% 152.71 154.48 156.25 158.03 159.80 161.58 163.35 9.65% 130.36 132.17 134.03 135.96 137.95 140.00 142.13
67.18% 148.43 150.21 151.98 153.76 155.53 157.30 159.08 9.75% 127.35 129.09 130.87 132.72 134.63 136.60 138.63
166.55 1.53 1.43 1.33 1.23 1.13 1.03 0.93
4.58% 134.12
147.24 163.08 182.59 207.17 239.10 282.19
4.68% 130.22 142.88 158.15 176.92 200.53 231.12 272.26
4.78% 126.54 138.77 153.50 171.59 194.29 223.64 262.99
4.88% 123.06 134.88 149.11 166.55 188.42 216.61 254.32
4.98% 119.75 131.19 144.95 161.79 182.88 210.00 246.18
5.08% 116.61 127.70 141.01 157.29 177.64 203.77 238.54
5.18% 113.63 124.38 137.28 153.03 172.69 197.89 231.34
Net Margin
Cap Ex
CV EPS Growth
Cost of Equity
Equity Risk Premium
CV NOPLAT Growth
WACC
Cost of Service Sales
Cost of Product Sales
Beta
Apple Inc.
Revenue Decomposition
All figures in millions of USD
Fiscal Years Ending Sep. 30 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
2031E 2032E
iPhone
164,888 142,381 137,781 191,973 205,489 200,000 219,845 239,478 258,725 277,440 295,502 312,816
329,311
344,940
359,673
% Growth 18.00%
-13.65%
-3.23% 39.33% 7.04%
-2.67% 9.92% 8.93% 8.04% 7.23% 6.51% 5.86%
5.27% 4.75% 4.27%
iPad 18,380
21,280
23,724
31,862
29,292
27,678 31,500 35,415 39,376 43,339 46,830 49,469 51,143 52,180 52,816
% Growth -2% 15.78% 11.48% 34.30% -8.07%
-5.51% 13.81% 12.43% 11.18% 10.07% 8.05%
5.64% 3.38% 2.03% 1.22%
Mac 25,198 25,740 28,622 35,190
40,177
33,500 36,000 38,418 40,740 42,957 45,060 47,045
48,911 50,657 52,284
% Growth -1% 2.15% 11.20% 22.95% 14.17% -16.62%
7.46% 6.72% 6.04% 5.44% 4.90%
4.41% 3.97% 3.57% 3.21%
Services 39,748 46,291 53,768 68,425 78,129 84,000
90,000
101,250 118,652 140,065 162,815 186,615 211,167 236,170 261,338
% Growth 22% 16.46% 16.15% 27.26% 14.18% 7.51% 7.14% 12.50% 17.19% 18.05% 16.24%
14.62% 13.16% 11.84% 10.66%
Wearables, Home and Accessories 17,381 24,482 30,620 38,367 41,241
42,500 46,000 50,167 55,166 61,213 68,594 77,691
89,026
103,313 121,551
% Growth 36% 40.85% 25.07% 25.30% 7.49% 3.05%
8.24%
9.06% 9.96% 10.96% 12.06% 13.26% 14.59% 16.05% 17.65%
Total 265,595 260,174 274,515 365,817 394,328 387,678
423,345 464,727 512,659 565,014 618,800
673,637 729,557 787,260 847,662
% Growth 16% -2.04% 5.51% 33.26% 7.79%
-1.69% 9.20% 9.78% 10.31% 10.21% 9.52%
8.86% 8.30% 7.91% 7.67%
Apple Inc.
Income Statement
All figures in millions of USD
Fiscal Years Ending Sep. 30 2018
2019
2020
2021 2022 2023E 2024E 2025E 2026E 2027E
2028E 2029E 2030E
2031E
2032E
Net Sales:
Products
228,405 213,883 220,747 297,392 316,199
303,678 333,345 363,477 394,007
424,949 455,985 487,022 518,391 551,090 586,324
Services
37,190 46,291 53,768 68,425 78,129
84,000 90,000 101,250 118,652 140,065 162,815 186,615 211,167 236,170 261,338
Total Net Sales 265,595 260,174 274,515 365,817 394,328
387,678
423,345 464,727 512,659 565,014 618,800 673,637 729,557 787,260 847,662
Cost of sales:
Products 148,160 144,996 151,286 192,266 201,471 194,912 213,953 233,293 252,888 272,748 292,667 312,588 332,722 353,710 376,324
Services 15,590 16,786 18,273 20,715 22,075 24,582 26,338 29,630 34,723 40,989 47,647 54,612 61,796 69,113 76,479
Total Cost of Sales 163,756 161,782 169,559 212,981 223,546 219,494 240,291 262,923 287,611 313,737 340,314 367,200 394,518 422,823 452,803
Gross Profit 101,839 98,392 104,956 152,836 170,782 168,185 183,054 201,804 225,049 251,278 278,486 306,437 335,039 364,437 394,859
Operating Expenses
Depreciation & amortization 10,903 12,547 11,056 11,284 11,104 12,509 13,397 14,349 15,374 16,480 17,674 18,959 20,337 21,811 23,352
Research & development expense 14,236
16,217 18,752 21,914 26,251 26,482 28,919 31,745 35,020 38,596 42,270 46,016 49,836 53,777 57,903
Selling, general & administrative expense 5,802 5,698 8,860 10,689 13,990 12,512 13,664 14,999 16,546 18,236 19,972 21,742 23,547 25,409 27,358
Total operating expenses 30,941 34,462 38,668 43,887 51,345 51,503 55,979 61,093 66,939 73,312 79,916 86,717 93,720 100,998 108,614
Operating income (loss) 70,898 63,930 66,288 108,949 119,437 116,681 127,075 140,711 158,109 177,965 198,570 219,721 241,319 263,440 286,245
Other income (expense), net 2,005 1,807 803 258 (334) 1,340 1,463 1,606 1,772 1,952 2,138 2,328 2,521 2,720 2,929
Income before provision for income taxes 72,903 65,737 67,091
109,207 119,103 118,021 128,538 142,317 159,881 179,918 200,708 222,048 243,840 266,160 289,174
Provision for (benefit from) income taxes 13,372 10,481 9,680 14,527 19,300 29,505 32,134 35,579 39,970 44,979 50,177 55,512 60,960 66,540 72,294
Net income (loss) 59,531 55,256 57,411 94,680 99,803 88,516 96,403 106,738 119,911 134,938 150,531 166,536 182,880 199,620 216,881
Tax rate 18% 16% 14% 13% 16% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%
Earnings per share:
Basic 3.00 2.99 3.31 5.67 6.15 5.65 6.37 7.30 8.48 9.85 11.33 12.92 14.61 16.40 18.31
Shares used in computing earnings per share:
Total Basic Shares Outstanding 19,020 17,773 16,977 16,427 15,943 15,387 14,865 14,375 13,915 13,484 13,078 12,698 12,340 12,005 11,690
Total Weighted Average Shares Outstanding 20000 18596 17528 16,865
16,326 15,665 15,126 14,620 14,145 13,699 13,281 12,888 12,519 12,173 11,848
Dividend per Share $0.68 $0.75 $0.80 $0.85 $0.90 $0.95 $1.00 $1.05 $1.10 $1.15 $1.20 $1.25 $1.30 $1.35 $1.40
Apple Inc.
Balance Sheet
All figures in millions of USD
Fiscal Years Ending Sep. 30 2018 2019 2020 2021 2022
2023E
2024E 2025E
2026E 2027E 2028E 2029E 2030E 2031E 2032E
Current Assets
Cash & cash equivalents 25,913 48,844 38,016 34,940 23,646
20,660 10,693 9,352 19,609 42,699 78,348 126,790 188,285 263,365 353,085
Marketable securities 40,388 51,713 52,927 27,699 24,658
25,864 27,129 28,455 29,847 31,306 32,837 34,443 36,127 37,893 39,746
Accounts receivable, net
23,186 22,926 16,120 26,278 28,184
29,265 31,958 35,082
38,700 42,652 46,713 50,852 55,074 59,430 63,989
Inventories 3,956 4,106 4,061 6,580 4,946
5,893 6,435 7,064 7,792 8,588 9,406 10,239 11,089 11,966 12,884
Vendor non-trade receivables 25,809 22,878
21,325 25,228 32,748
32,162 35,121 38,554
42,530
46,874 51,336 55,885 60,524 65,311 70,322
Other current assets 12,087 12,352 11,264 14,111 21,223
17,555 19,170 21,044 23,214 25,585
28,021 30,504 33,036 35,649 38,384
Total current assets 131,339 162,819 143,713 134,836 135,405 131,399 130,505 139,551 161,692 197,704 246,660 308,714 384,135 473,614 578,412
Non Current assets:
Marketable securities 170,799 105,341 100,887 127,877 120,805 126,712 132,909 139,408 146,225 153,375 160,875 168,742 176,994 185,649 194,727
Property, plant & equipment, net 41,304 37,378 36,766 39,440 42,117 45,108 48,311 51,762 55,489 59,508 63,834 68,475 73,438 78,626 83,274
Other non-current assets 22,283 32,978 42,522 48,849 54,428 49,399 53,944 59,217 65,324 71,995 78,849 85,836 92,962 100,315 108,011
Total non-current assets 234,386 175,697 180,175 216,166 217,350 221,219 235,163 250,387 267,038 284,879 303,558 323,054 343,393 364,590 386,012
Total assets 365,725
338,516 323,888 351,002 352,755 352,618 365,669 389,938 428,730 482,583 550,218 631,767 727,528 838,204 964,423
Liabilities and Shareholders' equity:
Current liabilites:
Accounts payable 55,888 46,236 42,296 54,763 64,115 66,255 72,350 79,423 87,614 96,562 105,754 115,125 124,682 134,544 144,866
Other current liabilities 32,687 37,720 42,684 47,493 60,845 54,869 59,917 65,774 72,558 79,968 87,581 95,342 103,257 111,424 119,972
Deferred revenue 7,543 5,522 6,643 7,612 7,912 8,893 9,711 10,661 11,760 12,961 14,195 15,453 16,736 18,059 19,445
Commercial paper 11,964 5,980 4,996 6,000 9,982 8,031 8,689 9,442 10,304 11,241 12,206 13,193 14,203 15,247 16,341
Term debt 8,780 10,260
8,773 9,613 11,128 10,013 10,834 11,773 12,847 14,016 15,219 16,450 17,709 19,011 20,374
Total current liabilities 116,866 105,718 105,392 125,481 153,982 148,061 161,501 177,072 195,084 214,748 234,954 255,563 276,586 298,285 320,998
Non-current liabilities:
Term debt 93,735 91,807 98,667 109,106 98,959 107,517 114,294 121,693 129,785 138,457 147,535 157,010 166,896 177,197 187,609
Other non-current liabilities 45,180 50,503 54,490 53,325 49,142 64,596 70,538 77,434 85,420 94,144 103,105 112,242 121,560 131,175 141,239
Total non-current liabilities 141,712 142,310 153,157 162,431 148,101 172,112 184,832 199,126 215,206 232,600 250,641 269,253 288,456 308,372 328,848
Total liabilities 258,578 248,028 258,549 287,912
302,083 320,173 346,333 376,198 410,289 447,348 485,595 524,816 565,042 606,657 649,846
Shareholder's Equity
Common stock and additional paid in capital 40,201 45,174 50,779 57,365 64,849 64,849 64,849 64,849 64,849 64,849 64,849 64,849 64,849 64,849 64,849
Retained earnings 70,400 45,898 14,966 5,562 (3,068) (21,295) (34,405) (40,001) (35,299) (18,505) 10,884 53,212 108,746 177,807 260,837
Accumulated other comprehensive income (loss) (3,454) (584) (406) 163 (11,109) (11,109) (11,109) (11,109) (11,109) (11,109) (11,109) (11,109) (11,109) (11,109) (11,109)
Total shareholders' equity 107,147 90,488 65,339 63,090 50,672 32,445 19,335 13,739 18,441 35,235 64,624 106,952 162,486 231,547 314,577
Total liablilities and shareholder's equity 365725 338516 323,888 351,002 352,755 352,618 365,669
389,938 428,730 482,583 550,218 631,767 727,528 838,204 964,423
Apple Inc.
Historical Cash Flow Statement
All figures in millions of USD
Fiscal Years Ending Sep. 30 2018 2019 2020
2021 2022
Cash, cash equivalents and restricted cash, beginning balances 20,289 25,913 50,224 39,789
35,929
Operating Activities:
Net income (loss) 59,531 55,256 57,411 94,680 99,803
Depreciation & amortization 10,903 12,547 11,056 11,284 11,104
Share-based compensation expense 5,340 6,068 6,829 7,906 9,038
Deferred income tax expense (benefit) (32,590) (340) (215) (4,774) 895
Other adjustments (444) (652) (97) (147) 111
Changes in operating assets and liabilities:
Accounts receivable, net (5,322) 245 6,917 (10,125) (1,823)
Inventories 828 (289) (127) (2,642) 1,484
Vendor non-trade receivables (8,010) 2,931 1,553 (3,903) (7,520)
Other current & non-current assets (423) 873 (9,588) (8,042) (6,499)
Accounts payable 9,175 (1,923) (4,062) 12,326 9,448
Deferred revenue (3) (625) 2,081 1,676 478
Other current & non-current liabilities 38,449 (4,700) 8,916 5,799 5,632
Cash generated from operating activites
77,434 69,391 80,674 104,038 122,151
Investing activities:
Purchases of marketable securities (71,356) (39,630) (114,938) (109,558) (76,923)
Proceeds from maturities of marketable securities 55,881 40,102 69,918 59,023 29,917
Proceeds from sales of marketable securities 47,838 56,988 50,473 47,460 37,446
Payments for acquisition of property, plant & equipment (13,313) (10,495) (7,309) (11,085) (10,708)
Payments made in connection with business acquisitions, net (721) (624) (1,524) (33) (306)
Other cash flow from investing activities (745) (1,078) (909) (352) (1,780)
Purchases of non-marketable Securities (1,871)
(1,001) - - -
Proceeds from non-marketable Securities 353 1,634 - - -
Cash used in investing activities 16,066 45,896 (4,289) (14,545) (22,354)
Financing activities:
Proceeds from issuance of common stock 669 781 - - -
Payments for taxes related to net share settlement of equity awards (2,527) (2,817) (3,634) (6,556) (6,223)
Payments for dividends & dividend equivalents (13,712) (14,119) (14,081) (14,467) (14,841)
Repurchases of common stock (72,738) (66,897) (72,358) (85,971) (89,402)
Proceeds from issuance of term debt, net 6,969 6,963 16,091 20,393 5,465
Repayments of term debt (6,500) (8,805) (12,629) (8,750) (9,543)
Proceeds from/(repayments of) commercial paper, net (37) (5,977) (963) 1,022 3,955
Other - (105) 754 976 (160)
Cash used in financing activities: (87,876) (90,976) (86,820) (93,353) (110,749)
Decrease in cash, cash equivalents and restricted cash 5,624 24,311 (10,435) (3,860) (10,952)
Cash, cash equivalents & restricted cash, ending balances 25,913 50,224 39,789 35,929 24,977
Supplemental cash flow disclosure:
Cash paid (received) for income taxes, net (10,417) (15,263)
(9,501) (25,385) (19,573)
Cash paid for interest (3,022) (3,423) (3,002) (2,687) (2,865)
Apple Inc.
Forecasted Cash Flow Statement
All figures in millions of USD
Fiscal Years Ending Sep. 30 2023E 2024E 2025E 2026E 2027E
2028E
2029E 2030E 2031E 2032E
Cash, cash equivalents, and restricted cash
Net Income (loss) 88,516 96,403 106,738 119,911 134,938 150,531 166,536 182,880 199,620 216,881
Add depreciation 12,509 13,397 14,349 15,374 16,480 17,674 18,959 20,337 21,811 23,352
Changes in vendor non-trade receivables 586 (2,959) (3,433) (3,976) (4,343) (4,462) (4,549) (4,639) (4,787) (5,011)
Changes in accounts receivable (1,081) (2,692) (3,124) (3,618) (3,952) (4,060)
(4,140) (4,221) (4,356) (4,560)
Changes in inventories (947) (542) (629) (729) (796)
(818) (834) (850) (877) (918)
Changes in other current assets
3,668 (1,615) (1,874) (2,170) (2,371)
(2,436) (2,483) (2,532) (2,613)
(2,735)
Changes in accounts payable
2,140 6,096 7,072
8,192 8,948 9,192 9,372 9,557 9,861 10,323
Changes in other liabilities
(5,976) 5,048 5,857 6,784 7,410 7,612 7,761 7,915 8,167 8,549
Other Non-current Assets
5,029 (4,545) (5,273) (6,108) (6,671) (6,853) (6,987) (7,126) (7,353) (7,697)
Change in deferred revenue
981 818 949 1,100 1,201 1,234 1,258 1,283 1,324 1,386
Change in non-current liabilities 15,454 5,943 6,895 7,987 8,723 8,962 9,137 9,318 9,615 10,064
Net cash flows from operating activities
120,878 115,352 127,527
142,745 159,567 176,576
194,030 211,921 230,412 249,634
Changes in marketable securities
(7,113) (7,461) (7,826) (8,208) (8,610) (9,031) (9,473) (9,936) (10,422)
(10,931)
Capital Expenditures (15,500) (16,600) (17,800) (19,100) (20,500) (22,000) (23,600) (25,300) (27,000) (28,000)
Net cash flows from investing activities (22,613) (24,061) (25,626) (27,308) (29,110) (31,031) (33,073) (35,236) (37,422) (38,931)
Changes in Short term debt (1,115) 820 939 1,075 1,168 1,203 1,231 1,259 1,302 1,363
Changes in long term debt 8,558 6,777 7,399 8,093 8,671 9,079 9,475 9,885 10,302 10,412
Changes in commercial paper (1,951) 658 753 862 937 965 987 1,010 1,044 1,093
Payment of dividends (14,882) (15,126) (15,351) (15,560) (15,754) (15,937) (16,110) (16,275) (16,433) (16,587)
Repurchases of common stock (91,861) (94,387) (96,982) (99,649) (102,390) (105,205) (108,099) (111,071) (114,126) (117,264)
Net cash flows from financing activities (101,251) (101,258) (103,242) (105,180) (107,367) (109,896)
(112,516) (115,191) (117,911) (120,982)
Net change in cash (2,986) (9,967) (1,341) 10,256 23,090 35,650 48,442 61,494 75,080 89,720
Beginning Cash and cash equivilants 23,646 20,660 10,693 9,352 19,609 42,699 78,348 126,790 188,285 263,365
Ending Cash and cash equivilants 20,660
10,693
9,352 19,609 42,699 78,348 126,790 188,285
263,365
353,085
Apple Inc.
Common Size Balance Sheet
All as % of Sales
Fiscal Years Ending Sep. 30 2018 2019
2020
2021 2022 2023E 2024E
2025E 2026E
2027E
2028E 2029E 2030E 2031E 2032E
Current assets:
Cash & cash equivalents 9.76% 18.77% 13.85% 9.55% 6.00%
11.59% 11.59% 11.59% 11.59% 11.59% 11.59% 11.59% 11.59% 11.59% 11.59%
Marketable securities
15.21% 19.88% 19.28% 7.57% 6.25%
13.64% 13.64% 13.64% 13.64% 13.64%
13.64% 13.64% 13.64% 13.64% 13.64%
Accounts receivable, net
8.73% 8.81% 5.87% 7.18% 7.15%
7.55% 7.55% 7.55% 7.55% 7.55%
7.55% 7.55% 7.55% 7.55% 7.55%
Inventories 1.49% 1.58% 1.48% 1.80% 1.25%
1.52%
1.52% 1.52% 1.52% 1.52%
1.52% 1.52% 1.52% 1.52% 1.52%
Vendor non-trade receivables 9.72% 8.79% 7.77% 6.90% 8.30%
8.30% 8.30% 8.30% 8.30%
8.30% 8.30% 8.30% 8.30% 8.30% 8.30%
Other current assets 4.55% 4.75% 4.10%
3.86%
5.38% 4.45% 4.86% 5.34% 5.89% 6.49% 7.11%
7.74% 8.38% 9.04% 9.73%
Total current assets 49.45% 62.58% 52.35%
36.86%
34.34% 33.32% 33.10% 35.39% 41.00% 50.14% 62.55%
78.29% 97.42% 120.11% 146.68%
Non Current assets:
Marketable securities
64.31% 40.49% 36.75% 34.96% 30.64%
32.13% 33.71% 35.35% 37.08% 38.90%
40.80% 42.79% 44.88% 47.08% 49.38%
Property, plant & equipment, net 15.55% 14.37% 13.39% 10.78% 10.68% 11.44% 12.25% 13.13% 14.07%
15.09% 16.19% 17.37% 18.62%
19.94%
21.12%
Other non-current assets 8.39% 12.68% 15.49%
13.35% 13.80% 12.53% 13.68%
15.02%
16.57% 18.26%
20.00% 21.77% 23.57% 25.44% 27.39%
Total non-current assets
88.25% 67.53%
65.63% 59.09%
55.12% 56.10% 59.64% 63.50% 67.72% 72.24% 76.98% 81.93% 87.08% 92.46% 97.89%
Total assets 137.70%
130.11% 117.99%
95.95%
89.46% 89.42% 92.73% 98.89% 108.72% 122.38% 139.53% 160.21% 184.50% 212.57%
244.57%
Current liabilites:
Accounts payable
21.04% 17.77% 15.41% 14.97% 16.26% 16.80% 18.35% 20.14%
22.22% 24.49%
26.82% 29.20% 31.62%
34.12% 36.74%
Other current liabilities 12.31% 14.50% 15.55%
12.98%
15.43% 13.91% 15.19% 16.68%
18.40% 20.28%
22.21% 24.18%
26.19% 28.26%
30.42%
Deferred revenue 2.84%
2.12% 2.42%
2.08%
2.01% 2.26% 2.46%
2.70% 2.98%
3.29%
3.60% 3.92% 4.24% 4.58% 4.93%
Commercial paper
4.50%
2.30% 1.82%
1.64% 2.53% 2.04% 2.20% 2.39% 2.61%
2.85%
3.10% 3.35% 3.60% 3.87%
4.14%
Term debt 3.37% 3.94% 3.20%
2.63% 2.82% 2.54% 2.75%
2.99%
3.26% 3.55%
3.86% 4.17% 4.49%
4.82%
5.17%
Total current liabilities
44.00% 40.63% 38.39% 34.30%
39.05% 37.55% 40.96% 44.90%
49.47%
54.46% 59.58% 64.81%
70.14% 75.64%
81.40%
Non-current liabilities:
Term debt 35.29% 35.29%
35.94% 29.83% 25.10% 27.27% 28.98% 30.86% 32.91% 35.11%
37.41% 39.82% 42.32% 44.94% 47.58%
Other non-current liabilities 17.01% 19.41% 19.85% 14.58% 12.46% 16.38% 17.89%
19.64% 21.66% 23.87% 26.15% 28.46% 30.83% 33.27% 35.82%
Total non-current liabilities
53.36% 54.70% 55.79% 44.40% 37.56%
43.65% 46.87% 50.50% 54.58% 58.99% 63.56% 68.28% 73.15%
78.20% 83.39%
Total liabilities 97.36% 95.33%
94.18% 78.70% 76.61%
81.19% 87.83% 95.40% 104.05% 113.45% 123.14% 133.09%
143.29% 153.85% 164.80%
Shareholder's Equity
Common stock and additional paid in capital 15.14% 17.36% 18.50% 15.68% 16.45%
16.45% 16.45% 16.45% 16.45% 16.45% 16.45%
16.45% 16.45% 16.45% 16.45%
Retained earnings
26.51% 17.64% 5.45% 1.52% -0.78%
-5.40% -8.72% -10.14% -8.95% -4.69% 2.76% 13.49%
27.58% 45.09% 66.15%
Accumulated other comprehensive income (loss
-1.30%
-0.22% -0.15% 0.04% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82% -2.82%
Total shareholders' equity 40.34% 34.78% 23.80% 17.25% 12.85% 8.23% 4.90% 3.48% 4.68% 8.94% 16.39% 27.12% 41.21% 58.72% 79.78%
Total liablilities and shareholder's equity 137.70% 130.11% 117.99% 95.95% 89.46% 89.42% 92.73% 98.89% 108.72% 122.38% 139.53% 160.21% 184.50% 212.57% 244.57%
Apple Inc.
Common Size Income Statement
As % of sales
Fiscal Years Ending Sep. 30 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2028E 2029E
2030E
2031E 2032E
Net Sales:
Products 86.00% 82.21% 80.41% 81.30% 80.19% 77.01% 84.53% 92.18% 99.92% 107.77% 115.64% 123.51% 131.46% 139.75% 148.69%
Services 14.00% 17.79% 19.59% 18.70% 19.81% 21.30% 22.82% 25.68% 30.09% 35.52% 41.29% 47.32% 53.55% 59.89% 66.27%
Total Net Sales 265,595 260,174 274,515 365,817 394,328 387,678 423,345 464,727 512,659 565,014 618,800 673,637 729,557 787,260 847,662
Cost of sales:
products 55.78% 55.73% 55.11% 52.56% 51.09% 49.43% 54.26% 59.16% 64.13% 69.17% 74.22% 79.27% 84.38% 89.70% 95.43%
services 5.87% 6.45% 6.66% 5.66% 5.60% 6.34% 6.22% 6.38% 6.77% 7.25% 7.70% 8.11% 8.47% 8.78% 9.02%
Total Cost of Sales 61.65% 62.18% 61.77% 58.22% 56.69% 55.77% 60.48% 65.54% 70.90% 76.42% 81.92% 87.38% 92.85% 98.48% 104.46%
Gross margin 38.34% 37.82% 38.23% 41.78% 43.31% 43.38% 43.24% 43.42% 43.90% 44.47% 45.00% 45.49% 45.92% 46.29% 46.58%
Operating Expenses:
Depreciation & amortization 5.36% 6.23% 6.83% 5.99% 6.66% 6.72% 7.33% 8.05%
8.88% 9.79% 10.72% 11.67% 12.64% 13.64% 14.68%
Selling, general & administrative expen
2.18% 2.19% 3.23% 2.92% 3.55% 3.17% 3.47% 3.80% 4.20% 4.62% 5.06% 5.51% 5.97% 6.44% 6.94%
Total operating expenses 11.65% 13.25% 14.09% 12.00% 13.02% 13.06% 14.20% 15.49% 16.98% 18.59% 20.27% 21.99% 23.77% 25.61% 27.54%
Operating income (loss) 26.69% 24.57% 24.15% 29.78% 30.29% 29.59% 32.23% 35.68% 40.10% 45.13% 50.36% 55.72% 61.20% 66.81% 72.59%
Other income (expense), net 0.75% 0.69% 0.29% 0.07% -0.08% 0.34% 0.37% 0.41% 0.45% 0.50% 0.54% 0.59% 0.64% 0.69% 0.74%
Income before provision for income ta
27.45% 25.27% 24.44% 29.85% 30.20% 29.93% 32.60% 36.09% 40.55% 45.63% 50.90% 56.31% 61.84% 67.50% 73.33%
Provision for (benefit from) income tax
5.03% 4.03% 3.53% 3.97% 4.89% 7.48% 8.15% 9.02% 10.14% 11.41% 12.72% 14.08% 15.46% 16.87% 18.33%
Net income (loss) 22.41% 21.24% 20.91% 25.88% 25.31% 22.45% 24.45% 27.07% 30.41% 34.22% 38.17% 42.23% 46.38% 50.62% 55.00%
Apple Inc.
Value Driver Estimation
All figures in billions of USD
Fiscal Years Ending Sep. 30 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
NOPLAT:
Sales 260.2 274.5 365.8 394.3 387.7 423.3 464.7 512.7 565.0 618.8 673.6 729.6 787.3 847.7
Cost of Sales (excl. D&A) 174.3 180.6 224.3 234.7 232.0 253.7 277.3 303.0 330.2 358.0 386.2 414.9 444.6 476.2
Depreciation & Amortization 12.5 11.1 11.3 11.1 12.5 13.4 14.3 15.4 16.5 17.7 19.0 20.3 21.8 23.4
Selling, General, and Administrative 5.7 8.9 10.7 14.0 12.5 13.7 15.0 16.5 18.2 20.0 21.7 23.5 25.4 27.4
Research & Development 16.2 18.8 21.9 26.3 26.5 28.9 31.7 35.0 38.6 42.3 46.0 49.8 53.8 57.9
Plus Interest on Operating Leases 0.4 0.4 0.4 0.5 0.5 0.5 0.6 0.7 0.7 0.8 0.9 1.0 1.1 1.2
EBITA 51.7 55.6 98.1 108.8 104.7 114.2 127.0 143.4 162.2 181.7 201.7 222.0 242.7 264.1
Provision for Income Tax 10.5 9.7 14.5 19.3 29.5 32.1 35.6 40.0 45.0 50.2 55.5 61.0 66.5 72.3
Plus Tax Shield on Lease Interest
0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3
Less Tax on Other, Net
0.5 0.2 0.1 -0.1 0.4 0.4 0.5 0.5 0.6 0.6 0.7 0.7 0.8 0.8
Adjusted Taxes
10.1 9.6 14.6 19.5 29.3 31.9 35.3 39.7 44.6 49.8 55.1 60.5 66.1 71.8
Change in Deferred Taxes -0.3 -0.2 -4.8 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NOPLAT 41.3 45.9 78.7 90.2 75.4 82.4 91.7 103.7 117.6 131.9 146.6 161.4 176.6 192.3
Invested Capital (IC):
Net Operating Working Capital
Operating Current Assets
Normal Cash (% of Sales) 15.6 16.5 21.9 23.7 23.3 25.4 27.9 30.8 33.9 37.1 40.4 43.8 47.2 50.9
Accounts Receivable, net 22.9 16.1 26.3 28.2 29.3 32.0 35.1 38.7 42.7 46.7 50.9 55.1 59.4 64.0
Inventories 4.1 4.1 6.6 4.9 5.9 6.4 7.1 7.8 8.6 9.4 10.2 11.1 12.0 12.9
Other Current Operating Assets 35.2 32.6 39.3 54.0 49.7 54.3 59.6 65.7 72.5 79.4 86.4 93.6 101.0 108.7
Total Operating Current Assets 77.9 69.2 94.1 110.8 108.1 118.1 129.6 143.0 157.6 172.6 187.9 203.5 219.6 236.4
Total Operating Current Liabilities
Accounts Payable 46.2 42.3 54.8 64.1 66.3 72.4 79.4 87.6 96.6 105.8 115.1 124.7 134.5 144.9
Deferred Revenue 5.5 6.6 7.6 7.9 8.9 9.7 10.7 11.8 13.0 14.2 15.5 16.7 18.1 19.4
Total Operating Current Liabilities 51.8 48.9 62.4 72.0 75.1 82.1 90.1 99.4 109.5 119.9 130.6 141.4 152.6 164.3
Total Net Operating Working Capital 26.1 20.3 31.8 38.7 33.0 36.0 39.5 43.6 48.1 52.7 57.3 62.1 67.0 72.1
Property, Plant, and Equipment, net 37.4 36.8 39.4 42.1 45.1 48.3 51.8 55.5 59.5 63.8 68.5 73.4 78.6 83.3
Long-term Operating Assets
PV Operating Leases 8.4 8.3 9.8 10.4 11.6 12.7 14.1 15.5 17.1 18.9 20.9 23.1 25.5 28.1
Other Long-Term Operating Assets 33.0 42.5 48.8 54.4 49.4 53.9 59.2 65.3 72.0 78.8 85.8 93.0 100.3 108.0
Total Long-term Operating Assets 41.4 50.8 58.6 64.8 61.0 66.7 73.3 80.8 89.1 97.8 106.7 116.0 125.8 136.2
Less Long-Term Operating Liabilities
Total Long-term Operating Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Invested Capital 104.9 107.9 129.8 145.6 139.1 151.0 164.6 179.9 196.7 214.2 232.5 251.5 271.4 291.6
Free Cash Flow (FCF):
NOPLAT 41 46 79 90 75 82 92 104 118 132 147 161 177 192
Change in IC 3 22 16 -7 12 14 15 17 18 18 19 20 20
FCF 41 43 57 74 82 70 78 88 101 114 128 142 157 172
Return on Invested Capital (ROIC):
NOPLAT 41 46 79 90 75 82 92 104 118 132 147 161 177 192
Beginning IC 104.90$ 107.87$ 129.83$ 145.63$ 139.12$ 150.99$ 164.61$ 179.95$ 196.72$ 214.25$ 232.52$ 251.54$ 271.41$
ROIC 43.71% 72.97% 69.44% 51.78% 59.20% 60.72% 63.03% 65.35% 67.05% 68.40% 69.43% 70.23% 70.85%
Economic Profit (EP):
Beginning IC $ 104.90 $ 107.87 $ 129.83 $ 145.63 $ 139.12 $ 150.99 $ 164.61 $ 179.95 $ 196.72 $ 214.25 $ 232.52 $ 251.54 $ 271.41
x (ROIC - WACC) 34.52% 63.79% 60.26% 42.59% 50.01% 51.53% 53.84% 56.16% 57.87% 59.22% 60.25% 61.04% 61.67%
EP $ 36.22 $ 68.81 $ 78.23 $ 62.02 $ 69.58 $ 77.80 $ 88.63 $ 101.06 $ 113.84 $ 126.88 $ 140.09 $ 153.54 $ 167.37
Apple Inc.
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity: ASSUMPTIONS:
Risk-Free Rate 3.45% 10 year treasury bond
Beta 1.23 5yr Raw Beta from Factset
Equity Risk Premium 4.88% Damodaran 12-month implied erp
Cost of Equity 9.45%
Cost of Debt:
Risk-Free Rate 3.45% 10 year treasury bond
Implied Default Premium 1.26%
Pre-Tax Cost of Debt 4.71% YTM on 10-yr Apple Bond
Marginal Tax Rate 28.87%
After-Tax Cost of Debt 3.35%
Market Value of Common Equity: MV Weights
Total Shares Outstanding 15.9434
Current Stock Price $165.21
MV of Equity 2,634.01 95.63%
Market Value of Debt:
Short-Term Debt
Current Portion of LTD 11.13
Long-Term Debt 98.96
PV of Operating Leases 10.35
MV of Total Debt 120.44 4.37%
Market Value of the Firm 2,754.45 100.00%
Estimated WACC 9.2%
Apple Inc.
Relative Valuation Models
EPS EPS
Ticker Company Price 2023E
2024E P/E 23 P/E 24
MSFT
Microsoft Corp. $280.57
$9.31 $10.79
30.14
26.00
GOOGL
Alphabet Inc. Class A $105.44
$5.15
$6.15
20.47 17.14
SMSN
Samsung $1,252.00
$31.68 $88.92
39.52 14.08
HPQ
HP Inc. $29.82
$3.31 $3.60
9.01 3.31
AMZN
Amazon.com, Inc. $98.13
$1.46 $2.53
67.21 38.79
Average 33.27 19.86
Numbers as of 4/16/2023
AAPL
Apple Inc. $165.21
$5.65
$6.37
29.2 25.9
P/E (EPS23)
$ 187.99
P/E (EPS24) 126.60$
Implied Relative Value:
Apple Inc.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth of NOPLAT 5.00%
CV Year ROIC 70.85%
WACC 9.19%
Cost of Equity 9.45%
Fiscal Years Ending Sep. 30
2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
1 2 3 4 5
6 7 8 9 9
DCF Model:
Free Cash Flow (FCF)
81.9 70.5 78.0 88.4 100.8 114.4
128.3 142.4 156.8 172.1
Continuing Value (CV)
4,270
PV of FCF
75.0 59.1 60.0 62.2 65.0 67.5 69.3 70.5 71.1 1,936.2
Value of Operating Assets: 2,535.94
Non-Operating Adjustments
Excess Cash 0.0
Marketable Security 145.5
Other Non-Current Assets 54.4
Value of debt -169.6
Value of Equity 2,566.2
Shares Outstanding 15.9
Intrinsic Value of Last FYE 160.96$
Implied Price as of Today 166.55$
EP Model:
Economic Profit (EP)
62.0
69.6 77.8 88.6 101.1 113.8 126.9
140.1 153.5 167.4
Continuing Value (CV)
3998.7
PV of EP
56.8 58.4 59.8 62.4 65.1 67.2 68.6 69.4 69.6 1813.1
Total PV of EP
2390.3
Invested Capital (last FYE)
145.6
Value of Operating Assets: 2535.94
Non-Operating Adjustments
Excess Cash 0.0
Marketable Securities 145.5
Other Non Current Assets 54.4
Value of Debt -169.6
Value of Equity 2566.2
Shares Outstanding 15.9
Intrinsic Value of Last FYE 160.96$
Implied Price as of Today 166.55$
Apple Inc.
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Sep. 30 2023E 2024E 2025E 2026E
2027E 2028E 2029E 2030E 2031E 2032E
EPS: 5.65$ 6.37$
7.30$ 8.48$ 9.85$
11.33$ 12.92$ 14.61$ 16.40$
18.31$
Key Assumptions
CV growth of EPS 3.50%
CV Year ROE 93.67%
Cost of Equity 9.45%
Future Cash Flows
P/E Multiple (CV Year) 16.17
EPS (CV Year) 18.31$
Future Stock Price 296.05$
Dividends Per Share 0.95 1 1.05 1.1 1.15
1.2 1.25 1.3 1.35
Discounted Cash Flows 0.87$ 0.83$
0.80$ 0.77$ 0.73$ 0.70$ 0.66$ 0.63$ 0.60$ 131.32$
1 2 3 4 5 6 7 8 9 9
Intrinsic Value as of Last FYE 137.92$
Implied Price as of Today
142.71$
Apple Inc.
Key Management Ratios
Fiscal Years Ending Sep. 30 2018
2019 2020 2021 2022 2023E 2024E 2025E
2026E 2027E 2028E 2029E 2030E 2031E
2032E
Liquidity Ratios:
Quick Ratio (LA/CL) 0.57 0.95
0.86 0.50 0.31 0.31 0.23 0.21
0.25
0.34
0.47 0.63
0.81 1.01 1.22
Current Ratio (CA/CL) 1.12
1.54 1.36 1.07 0.88 0.89 0.81 0.79 0.83
0.92
1.05 1.21
1.39 1.59 1.80
Cash Ratio (Cash/CL) 0.22
0.46
0.36 0.28 0.15 0.14 0.07 0.05
0.10
0.20
0.33
0.50 0.68
0.88 1.10
Asset-Management Ratios:
Total Asset Turnover (Rev/Assets) 0.73 0.77 0.85
1.04
1.12 1.10 1.16 1.19 1.20 1.17 1.12 1.07 1.00 0.94 0.88
Recievable Turnover (Rev/Avg. AR) 11.52 13.33 12.95 13.43
13.73 12.66 12.63 12.60 12.60 12.65 12.68 12.72 12.74 12.76
13.25
Day in Recievable (365/above)
31.69 27.39
28.19 27.17 26.59 28.82 28.90 28.97 28.96
28.86 28.77 28.70 28.64 28.61
27.55
Financial Leverage Ratios:
Debt/Equity 0.96 1.13
1.64 1.88 2.17 3.62 6.47
9.71 7.73 4.33 2.52 1.62 1.14
0.85 0.66
Debt/total Assets 0.28 0.30 0.33 0.34 0.31 0.33 0.34 0.34 0.33 0.32 0.30 0.27 0.25
0.23 0.22
Profitability Ratios:
Return on Equity (NI/Beg TSE) 52% 63% 145%
158% 175% 297% 552% 873%
732% 427% 258% 171% 123% 94%
Gross Profit Margin (Revenue-cogs/rev)x100 38.3% 37.8% 38.2% 41.8%
43.3% 43.4% 43.2% 43.4% 43.9% 44.5% 45.0% 45.5% 45.9% 46.3%
46.6%
Return on Assets (Net Income/ Total Assets)
16.3% 16.3%
17.7% 27.0% 28.3% 25.1% 26.4% 27.4% 28.0%
28.0% 27.4% 26.4% 25.1% 23.8% 22.5%
Payout Policy Ratios:
Dividend Payout Ratio (Dividend/EPS) 22.64% 25.06%
24.17% 14.99% 14.63% 16.81% 15.69%
14.38% 12.98% 11.68% 10.59% 9.67%
8.90% 8.23% 7.65%
Total Payout Ratio ((Divs. + Repurchases)/NI) 99% 96% 102% 76% 75% 87% 82% 76% 70% 64% 59% 55% 52%
49% 46%
Apple Inc.
Present Value of Operating Lease Obligations
Fiscal Years Ending Sep. 30 2018 2019 2020 2021 2022 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
Year 1 1.3 1.3 1.5 1.6 1.8 1.9 2.1 2.2 2.4 2.6 2.8 3.1 3.3 3.6 3.9
Year 2 1.3 1.3 1.5 1.6 1.7 1.9 2.1 2.3 2.5 2.8 3.1 3.4 3.7 4.1 4.5
Year 3 1.2 1.1 1.3 1.5 1.7 1.9 2.1 2.4 2.7 3.0 3.4 3.8 4.3 4.9 5.5
Year 4 1.0 0.9 1.1 1.3 1.4 1.6 1.8 2.0 2.2 2.5 2.8 3.2 3.6 4.1 4.6
Year 5 0.8 0.8 1.0 1.1 1.1 1.2 1.4 1.5 1.6 1.7 1.9 2.1 2.2 2.4 2.6
Thereafter 4.0 5.4 3.8 5.2 5.1 5.9 6.3 7.1 7.8 8.6 9.4 10.4 11.5 12.7 14.0
Total Minimum Payments 9.6 10.8 10.1 12.2 12.8 14.4 15.7 17.5 19.3 21.3 23.5 26.0 28.7 31.7 35.1
Less: Cumulative Interest 1.9 2.4 1.9 2.4 2.4 2.8 3.0 3.4 3.7 4.2 4.6 5.1 5.7 6.3 6.9
PV of Minimum Payments 7.7 8.4 8.3 9.8 10.4 11.6 12.7 14.1 15.5 17.1 18.9 20.9 23.1 25.5 28.1
Implied Interest in Year 1 Payment 0.36 0.40 0.39 0.46 0.49 0.55 0.60 0.66 0.73 0.81 0.89 0.98 1.09 1.20
Pre-Tax Cost of Debt 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71% 4.71%
Years Implied by Year 6 Payment 5.0 6.4 4.0 4.9 4.4 4.7 4.7 4.8 4.9 4.9 5.0 5.1 5.2 5.2 5.3
Expected Obligation in Year 6 & Beyond 0.80 0.83 0.96 1.06 1.14 1.25 1.35 1.47 1.60 1.74 1.89 2.05 2.23 2.42 2.63
Present Value of Lease Payments
PV of Year 1 1.2 1.2 1.4 1.6 1.7 1.8 2.0 2.1 2.3 2.5 2.7 2.9 3.2 3.4 3.7
PV of Year 2 1.2 1.2 1.3 1.4 1.6 1.7 1.9 2.1 2.3 2.5 2.8 3.1 3.4 3.7 4.1
PV of Year 3 1.1 1.0 1.1 1.3 1.5
1.6 1.9 2.1 2.3 2.6 3.0 3.3 3.8 4.2 4.8
PV of Year 4 0.9 0.8 0.9 1.0 1.1 1.3 1.5 1.7 1.9 2.1 2.4 2.7 3.0 3.4 3.8
PV of Year 5 0.6 0.7 0.8 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.8 1.9 2.1
PV of 6 & beyond 2.8 3.6 2.7 3.6 3.6 4.1 4.4 4.9 5.4 6.0 6.6 7.2 7.9 8.7 9.6
Capitalized PV of Payments 7.7 8.4 8.3 9.8 10.4 11.6 12.7 14.1 15.5 17.1 18.9 20.9 23.1 25.5 28.1
Apple Inc.
Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding
Number of Options Outstanding (shares): 233,368
Average Time to Maturity (years): 0.00
Expected Annual Number of Options Exercised:
Current Average Strike Price: -$
Cost of Equity: 9.45%
Current Stock Price: $165.21
Fiscal Years Ending Sep. 30
2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E
2032E
Increase in Shares Outstanding: 0 0 0 0 0 0 0 0 0 0
Average Strike Price: -$ -$ -$ 0.00 -$ -$ -$ -$ -$ -$
Increase in Common Stock Account: - - - 0 - - - - - -
Share Repurchases ($) 91,861 94,387 96,982 99,649 102,390 105,205 108,099 111,071 114,126 117,264
Expected Price of Repurchased Shares: 165.21$ 180.83$ 197.92$ 217 237.10$ 259.52$ 284.05$ 310.89$ 340.28$ 372.45$
Number of Shares Repurchased: 556 522 490 460 432 405 381 357 335 315
Shares Outstanding (beginning of the year) 15,943 15,387 14,865 14,375 13,915 13,484 13,078 12,698 12,340 12,005
Plus: Shares Issued Through ESOP 0 0 0 0 0 0 0 0 0 0
Less: Shares Repurchased in Treasury
556 522 490 460 432 405 381 357 335 315
Shares Outstanding (end of the year) 15,387 14,865 14,375 13,915 13,484 13,078 12,698
12,340
12,005 11,690
