As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Apple Inc (AAPL).
Profile
Apple is among the largest companies in the world, with a broad portfolio of hardware and software products targeted at consumers and businesses. Apple’s iPhone makes up a majority of the firm sales, and Apple’s other products like Mac, iPad, and Watch are designed around the iPhone as the focal point of an expansive software ecosystem. Apple has progressively worked to add new applications, like streaming video, subscription bundles, and augmented reality. The firm designs its own software and semiconductors while working with subcontractors like Foxconn and TSMC to build its products and chips. Slightly less than half of Apple’s sales come directly through its flagship stores, with a majority of sales coming indirectly through partnerships and distribution.
Recent Performance
Over the past twelve months the share price is up 1.19%.
Inputs
- Discount Rate: 10%
- Terminal Growth Rate: 2%
- WACC: 10%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 109 | 99.09 |
| 2025 | 121 | 100.00 |
| 2026 | 135 | 101.43 |
| 2027 | 149 | 101.77 |
| 2028 | 164 | 101.83 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 2091 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 1298.35 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 504.12 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 1802.46 billion
Net Debt
Net Debt = Total Debt – Total Cash = 67.28 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 1735.18 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $112.24
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $112.24 | $167.20 | -48.97% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $112.24 per share is lower than the current market price of $167.20. The Margin of Safety is -48.97%.
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