At Valuecruncher we have looked at Apple (AAPL) twice over the last six-months. In June, with the $AAPL share price at US$186.10, we produced a valuation of US$146.70. Then in September with the $AAPL share price at US$131.05 we had a valuation of US$163.98.
We are now in early-December and $AAPL has continued to head south - with the market generally. $AAPL is now trading at US$94.00 - just over half the price we first looked at in June. We felt it was time to revisit the valuation of $AAPL from an intrinsic value perspective - and most importantly the assumptions that we are using. We have also completed some high-level comparator analysis looking at the current price of $AAPL against some broad peers using a range of metrics.
Valuecruncher produces a valuation of US$109.55 for $AAPL. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 16.5% above the current share price of US$94.00.
- Revenue: Reuters aggregates 29 analysts covering $AAPL and the mean estimate of 2009 revenues is US$40.6 billion. For our analysis we have used US$36.5 billion in 2009, US$43.5 billion in 2010 and US$49.0 billion in 2011.
- Profitability: We have used an EBITDA margin of 19.0% to 2011. Reuters has $AAPL‘s EBITD margin at 20.8% last year and an average of 16.8% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of US$1.15 billion per annum moving forward.
- Discount Rate: 11.0%. In our June valuation we used a discount rate of 11.0% but dropped that to 10.0% in September. We believe 11.0% is a reasonable assumption in the current market conditions.
- Terminal Growth Rate: 4.0%. In our assumptions we have 2010/11 revenue growth at 12.6% - we have assumed that growth eventually slows to a 3.0% long-term stable growth rate.
Our analysis incorporates the cash on the $AAPL balance sheet – Valuecruncher calculates a net debt number.
Comparator analysis (sometimes called comparison company analysis) is a relative valuation approach. At Valuecruncher we have previously looked at comparator analysis. For $AAPL we looked at a range of broad peers. We calculated enterprise values - market capitalisation plus net debt (long-term borrowings less cash). Then we measured a range of metrics against the enterprise value for $AAPL and the peer set.
We have used the last financial year (LFY) as the base set of metrics. Of the peer group, EBAY and YHOO had rough LFY performance. The other numbers are interesting. The one that stands out a mile to us however is that $AAPL is currently trading at 7.0x last years free cash flow (FCF). Remove the cash and you can have the business for 7.0x last years FCF - no growth assumed. Wow - that looks cheap.
Using our valuation of US$109.55 that gives a EV/FCF multiple of 8.7x. That is still pretty reasonable compared to the peer set.
Play with our assumptions – what does your analysis say?