Running The Numbers – Apple Looks Cheap

The on-going turmoil in the markets and analysts lowering estimates across the technology sector has had a big impact on Apple’s (AAPL) share price.  AAPL finished at US$131.05 on the 22 September 2008 – 35% below the 52 week high of US$202.96.  We decided to look at the underlying numbers for AAPL using the Valuecruncher on-line valuation model to see where we place the current share price.

Valuecruncher valuation model of AAPL with interactive assumptions

Valuecruncher produces a valuation of US$163.98 for AAPL.  This is a current valuation not a target price.  This valuation is 25% above the current share price of US$131.05 (note our model picks up an earlier price of US$140.91 because we completed the valuation earlier).

Assumptions

Our assumptions are revenues of US$32.5 billion in 2008 growing to US$50.0 billion in 2010. We have used an EBITDA margin of 20.5% in 2008 dropping to 19.5% in 2010. We used a terminal growth rate of 5.75%. We used a terminal capital expenditure number of US$1.25 billion. We have used a WACC (discount rate) of 10.0%.  All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

Our analysis incorporates the cash on the Apple balance sheet – Valuecruncher calculates a net debt number.

Based on our analysis the current share price looks cheap.  Play with our assumptions – what does your analysis say?

View the full AAPL chart at Wikinvest

 

Stock position: None.

Comments

[Murphy Mac:]

Valuecruncher reminds me of the Transmogrifier from Calvin and Hobbes.

2008 Sep 23 07:13 AM

[dr b:]

Raise the WACC to 11% and AAPL looks expensive (AAPL's beta is >2). Lower the (exceedingly high) terminal growth rate to 4.75 and AAPL looks expensive. You can get any result you want with a DCF valuation.

2008 Sep 23 07:49 AM

[KenC:]

Any DCF analysis is highly sensitive to your assumptions.

Having said that, the one set of numbers which I think you miscalculate is revenues. By 2010, the iPhone's deferred revenues will be fully felt, instead of the current situation, where much of the revenues have been put off. If Apple sells 45M iPhones like some analysts predict in 2009, that would mean about 22.5B in additional revenue, just for the phone. Your revenue growth is really predicated upon existing lines of business since, iPhones currently contribute so little.

In other words, I think revenue growth is far too low.

2008 Sep 23 02:20 PM

[Valuecruncher:]

@ Murphy

What a brilliant call. I love it.

I may need to get t-shirts printed...

Valuecruncher

2008 Sep 23 04:08 PM

[Constable Odo:]

Apple looks cheap and is getting cheaper by the day. That $164 target price looks a heck of a lot more sensible than Munster's $250 or Ken C's undoubtedly optimistic view. The supposedly recession-proof Apple is getting hit as hard or harder as any company with lesser value. WS is in "screw fundamentals" mode. My analysis of the whole mess is don't buy any stocks, Apple included until the market stabilizes.

2008 Sep 23 04:47 PM