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 Inc. is a multinational technology company that designs, manufactures, and markets a range of consumer electronics, software, and online services. Its product lineup includes the iPhone, iPad, Mac computers, Apple Watch, and Apple TV. The company also offers software platforms such as iOS, macOS, and services including Apple Music, iCloud, and Apple Pay. Apple operates globally, with a significant presence in the Americas, Europe, Greater China, Japan, and the rest of the Asia Pacific region.
Recent Performance
Over the past twelve months, Apple’s share price is up by 29.93%.
Source: (Google Finance)
Inputs
- Discount Rate: 9%
- Terminal Growth Rate: 3%
- WACC: 9%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF ($B) | Present Value ($B) |
| 2025 | 116.8 | 107.2 |
| 2026 | 133.7 | 112.5 |
| 2027 | 155.6 | 119 |
| 2028 | 181.2 | 125.9 |
| 2029 | 211 | 132.5 |
Total Present Value of FCFs = 597.1 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value =
(FCF_2029 × (1 + g)) / (r – g)
= (211.0 × 1.03) / (0.09 – 0.03)
= 3,622.8 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5
= 3,622.8 / (1.09)^5
= 2,354.6 billion
Enterprise Value Calculation
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 597.1 + 2,354.6
= 2,951.7 billion
Net Debt Calculation
Net Debt = Total Debt – Total Cash
= 109.1 – 62.0
= 47.1 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 2,951.7 – 47.1
= 2,904.6 billion
Per-Share DCF Value
Shares Outstanding = 15.02 billion
Per-Share DCF Value = Equity Value / Shares Outstanding
= 2,904.6 / 15.02
= $193.38
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $193.38 | $237.30 | -18.47% |
Based on this DCF valuation, Apple appears to be overvalued. The estimated intrinsic value of $193.38 per share is lower than the current market price of $237.30, resulting in a -18.47% margin of safety.
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