Bnon

How to Get Apple to $200

Deficiencies in your calculation:

- 20 billion cash reserves currently = reduction of share price by approx. $20
- If you look at the growth curve of the past 2 years, 18-20% is too conservative. Growth cannot grow continually, but here's where soft factors play a role in hard DCF analyses. The growth prospects can assumed to rise further if the iPhone growth keeps increasing at the targeted rate of 10m for 2008 and further. As some supply channel info has shown, there's a good chance that the iPhone product palette may be broadened by Monday by iPhone nanos and, possibly, a third model like the 2.5G iPhone currently sold (apart from the much anticipated 3G model).
-current earnings are not reflecting true cash inflow, as apple has changed accounting rules to accomodate the cash inflows from iPhone and appleTV sales to a 2 year appreciation period to match prospective product life + supporting cost (OS etc.). This means, that under "retained earnings" in current statements are hidden large amounts of already earned and not appreciated earnings. As these mostly come from ATT kickbacks and device sales, they are assumed to be about 60-80% pure profit.
- A sensitivity analysis of your data shows the high fluctuation in the company value dependent on small changes in the WACC (as often with DCFs) and assumed growth. In this growth company case, it would definitely pay off to perform a proper Real Options analysis with Monte Carlo simulations instead of DCF analyses. By default, these generate a higher value than the average DCF analysis with the same assumptions, but also reflect more accurate firm values in general and per case and scenario.