Apple Inc. (AAPL) Valuation Report

Intrinsic Value
$1.5T

Value Per Share
$98 -46%

Price Target
$117 -36%

Market Cap
$2.8T

Enterprise Value
$2.8T

Price
$181.44 -0.66%

Dividend Yield
0.5%

Adjusted Yield
3.0%

TTM Growth Margin Ratio Yield
Revenue $386B -0.5% 7.4x
Gross $174B 4.1% 45.0% 16.3x
EBITDA $130B 3.8% 33.7% 21.8x
EBIT $119B 4.1% 30.8% 23.9x 4.2%
Profit $101B 6.0% 26.2% 27.8x 3.6%
FCFF $86B 9.5% 22.3% 32.9x 3.0%
FCFE $94B 23.1% 30.3% 29.9x 3.3%
Cost of Equity = 9.9% | Cost of Capital = 9.7%Currency: USD | Updated:
Sector: Technology | Industry: Consumer Electronics | Read more...

Apple Inc.
designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide.
The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
It also provides AppleCare support and cloud services; and operates various platforms, including the App Store that allow customers to discover and download applications and digital content, such as books, music, video, games, and podcasts.
In addition, the company offers various services, such as Apple Arcade, a game subscription service; Apple Fitness+, a personalized fitness service; Apple Music, which offers users a curated listening experience with on-demand radio stations; Apple News+, a subscription news and magazine service; Apple TV+, which offers exclusive original content; Apple Card, a co-branded credit card; and Apple Pay, a cashless payment service, as well as licenses its intellectual property.
The company serves consumers, and small and mid-sized businesses; and the education, enterprise, and government markets.
It distributes third-party applications for its products through the App Store.
The company also sells its products through its retail and online stores, and direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers.
Apple Inc.
was incorporated in 1977 and is headquartered in Cupertino, California..

Full-time employees: 161,000 | HQ: Cupertino
Website: https://www.apple.com

Valuation

Input

➜ Revenue Growth

➜ EBIT Margins

➜ Reinvstment Efficiency

➜ Cost of Capital

➜ Tax

AAPL Valuation Output

Terminal value

$1.9T

+ PV Terminal Value

$784B

+ PV FCFF

$773B

= Sum of PV

$1.6T

+ Cash

$73B

- Debt

$108B

= Intrinsic Value

$1.5T

Value Per Share

$98

Overvalued by 46% vs its $181 Price

1-Year Price Target

$117 (-36%)

10-Year Fundamental Projections for Apple Inc. (AAPL)
YearGrowthSalesEBIT %EBITTaxNOPATReinvestmentROICFCFFWACCPV FCFF
TTM 6.4% $386B 30.8% $119B 15% $101B $4.1B 93% $86B 9.7% --
2025 6.4% $410B 30.8% $126B 15% $107B $7.1B 93% $100B 9.7% $92B
2026 6.4% $437B 30.8% $134B 15% $114B $7.5B 92% $107B 9.7% $89B
2027 6.4% $465B 30.8% $143B 15% $122B $8B 92% $114B 9.7% $86B
2028 6.4% $494B 30.8% $152B 15% $129B $8.5B 92% $121B 9.7% $83B
2029 6.4% $526B 30.8% $162B 15% $138B $9B 92% $129B 9.7% $81B
2030 6.0% $557B 30.8% $172B 17% $143B $11B 89% $132B 9.5% $76B
2031 5.6% $588B 30.8% $181B 18% $148B $11B 86% $137B 9.2% $72B
2032 5.1% $619B 30.8% $191B 20% $152B $11B 84% $142B 9.0% $68B
2033 4.7% $648B 30.8% $199B 22% $156B $10B 81% $146B 8.7% $65B
2034 4.3% $675B 30.8% $208B 23% $159B $9.9B 79% $150B 8.5% $61B
♾️ 4.3% $704B 30.8% $217B 25% $163B $82B 8.5% $81B 8.5% --
How is AAPL's expected return calculated?

The expected return is a percent (%) estimate of how much a stock's value will change per year. It is used to calculate AAPL's 1-year price target by multiplying the stock's present value with (1 + expected return). The expected return is calculated using a stock's risk (cost of capital), excess returns, and dividend yield.

Expected Return = (1 + Cost of Capital) * (Cost of Capital * (1 + ROIC - Cost of Capital - Dividend Yield))
19.3% = 109.7% * (9.7% * 182.5%)

We exclude dividend payments because they aren't reflected in a stock's price. Note that excess returns are highly dependant on our estimate of invested capital and its return. Neglecting to capitalize expense items such as operating leases, R&D, brand name marketing expenses, may inflate the excess return estimate.

Growth

In the 12 months ending Q1'24 Apple Inc. (AAPL) grew revenues by -0.5%, from $388B to $386B - indicating a deceleration of revenue growth. AAPL has a 5-year and 3-year revenue compound annual growth rate (CAGR) of 7.6% and 0.6% respectively.

Revenue Growth Estimates

Sustainable
2.5%
Fundamental
4.9%
Priced-in
6.3%

Bottom Line Growth Estimates

Fundamental Earnings Growth
0.1%
Fundamental EBIT Growth
5.0%
Priced-in FCFF Growth
6.4%

Looking at forward estimates, we can see that the market is pricing-in a 6.3% long-term revenue growth rate, while the financials indicate a future revenue growth rate between 2.5% and 4.9%.

Using the average of these 3 estimates we get a 4.6% long-term revenue growth for AAPL.

What is AAPL's sustainable revenue growth?

Similar to fixed vs variable costs, the sustainable growth rate shows how much we can expect the company to grow based on their reinvestment into the business, excluding variable demand and pricing. This rate may be helpful as a long-term baseline for the company.

(AAPL) has invested $109B in total capital, consisting of $74B in book value of equity, plus $108B in total debt, less $73B in cash & equivalents.
By adding on the average reinvestment of $5.5B in the last 4 quarters on a TTM basis to the $109B capital base, and applying the current sales to capital ratio of 353.7%, we can expect the company to grow its revenue to $405B, implying growth of 5%. However, we assume at least one gap year for CapEx to transform into growth, so we divide the rate by 2 and get a 2.5% sustainable revenue growth.
Use your own judgement based on the type of business since it takes time for reinvestment to yield growth.

What are AAPL's fundamental revenue & EBIT growth rates?

The fundamental growth rates analyze how much (AAPL) is reinvesting into the business, adjusted for the quality of those reinvestments to come up with an estimate for a long-term future growth. Both fundamental and sustainable gorwt rate estimates attempt to use fundamentals in estimating growth.

Apple Inc. (AAPL) has reinvested an average of $5.5B on a rolling TTM basis, reflecting a reinvestment rate of 5.4%, calculated as:
Reinvestment / (EBIT - Tax) a.k.a. NOPAT.
By multiplying the reinvestment rate with the return on invested capital (ROIC) we get a long-term estimate for a growth in EBIT:
5.4% * 92.8% = 5.0% (Reinvestment rate * ROIC)

In order to convert this to a fundamental revenue growth rate, we analyze the relationship between EBIT growth and Revenue growth, and come up with a scaling factor of 98.3%. We then multiply the fundamental EBIT growth estimate by the revenue scaling factor and get an equivalent for a fundamental revenue growth rate of 4.9%.

What FCFF & revenue growth rates is the market pricing-in for AAPL?

In order to justify the current $2.8T market capitalization given a 9.7% cost of capital, AAPL needs to keep growing its un-levered free cash flows by 6.4% across many ( >10 ) years.

AAPL's market implied FCFF growth rate of 6.4% =
1 + (Enterprise Value * Cost of Capital - FCFF) / (Enterprise Value + FCFF) =
1 + ($2.8T * 9.7% - $86B) / ($2.8T + $86B)

By analyzing the relationship between EBIT growth and revenue growth, we get a scaling factor of 98.3% that we apply to our implied FCFF growth in order to get the market implied revenue growth rate of 6.3%

Margins

Gross
45.0%
4.6% YoY
EBIT
30.8%
4.6% YoY
Profit
26.2%
6.5% YoY
FCFF
22.3%
10.0% YoY
Why is AAPL scaling revenues by 3.4% relative to COGS?

AAPL grew revenue by -0.5% in the last 12 months, and their COGS changed by -3.9% in the same period. This means that the company is scaling revenues 3.4% better than costs.

A company that has a scaling rate above 1:1 indicates efficient growth that may translate into added value in the bottom line. Conversely, if the rate is lower, e.g. 1:0.9, it shows that while the company managed to grow, their costs increased more than revenues.

Free Cash Flows

Reinvestment
-$4.1B
FCFF
$86B
FCFE
$94B
Net CapEx
$1.9B
Simple FCFF
$107B
Change in WC
-$6B

Note: cash flows in the table and chart are presented as inflows and outflows, meaning that positive numbers indicate how much a company has taken in, and negatives show how much cash has flown out.

What is included in AAPL's $9.6B capital expenditures?

In the last 12 months AAPL invested $9.6B in plant property & equipment (PPE) CapEx.

How much is AAPL reinvesting into the business?

In the last 12 months ending Q1'24, AAPL made capital expenditures of $9.6B. By netting out the depreciation of $11B, we get a NetCapEx of -$1.9B, indicating that the company invested less than it needs to, in order to sustain growth.

Finally, we add on the change in Working Capital of $6B, and get a Total Reinvestment of $4.1B.

By investing more than it depreciates, AAPL is increasing its future growth assets.

How are AAPL's $86B free cash flows to the firm (FCFF) calculated? AAPL's $86,135,000,000.00 Free Cash Flows to the Firm (FCFF) =
$118,658,000,000.00 EBIT
- $17,132,000,000.00 Tax
- $9,564,000,000.00 Plant Property Equipment
- -$0.00 Acquisitions
+ $11,451,000,000.00 Depreciation
+ -$5,962,000,000.00 Change in Working Capital
- $10,925,000,000.00 Stock Based Compensation

Free Cash Flows to the Firm are important because they indicate how much a company has left over for all (debt & equity) investors.
It is a measure of the true bottom line for investors, as opposed to earnings and the simplified version of free cash flows (Cash from operating activities - PPE).

In the last 12 months AAPL had $86B in free cash flows, indicating that the business has managed to create value for investors.

How are AAPL's $94B free cash flows to equity investors (FCFE) calculated? AAPL's $93,768,000,000.00 Free Cash Flows to the Equity (FCFE) =
$100,913,000,000.00 Net Income
- $9,564,000,000.00 Plant Property Equipment
- -$0.00 Acquisitions
+ $11,451,000,000.00 Depreciation
+ -$5,962,000,000.00 Change in Working Capital
+ $108,040,000,000.00 Total Debt today
- $111,110,000,000.00 Total Debt one year ago

Free Cash Flows to the Equity investors show how much the company has left over for shareholders.
It is an insightful metric when paired with FCFF for analyzing companies that have a lot of debt, as it can reveal the effect of interest rates on the value of equity.

When compared to FCFF, they should be roughly in-line, else we need to think about what causes the difference. In the last 12 months AAPL had $94B in free cash flows to equity, indicating that the business can return capital in the form of dividends and buybacks.

Returns

ROE
136.2%
ROIC
92.8%
Sales to Cap
353.7%
How much excess returns (value) is AAPL creating on average (105%), and how to calculate it?

ROE Excess Returns 126.3% = Return on Equity - Cost of Equity
ROC Excess Returns 83.1% = Return on Capital - Cost of Capital

Average Excess Returns = (ROE - Cost of Equity + ROIC - Cost of Capital) / 2

For every 1% of growth in its net and operating income, the value of AAPL's stock changes by an average of 1.05%.

Excess returns are important because they help us estimate a company's target price.

If you are analyzing a company with a lot of R&D expenses, consider capitalizing them as an asset to get a better ROE & ROC estimate - You can use our automated spreadsheet.

Capital Structure

Equity
$74B
Debt
$108B
Cash
$73B
Interest Coverage
40.5x
Debt to EBITDA
0.83x
Debt to Capital
3.7%

Dividends & Buybacks

Adj. Yield
3.0%
Dividends + Buybacks - SBC
FCFE Payout
90.4%
% FCFE paid as Div + Net Buybacks
R-R Upside
-45.7%
FCFE yld. / Cost of Equity - 1

Apple Inc. has transferred a total value of $85B to investors in the last 12 months. The required cash return (excluding expected growth) for AAPL is $156B, or a 5.6% yield in the same period.

With an adjusted payout of 90.4%, AAPL seems to be spending an affordable portion of its FCFE.

SEC Filings

Examine the details and validate data:

Historical SEC Filings

Headlines