As part of our ongoing 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 world’s most iconic technology companies, Apple Inc. (AAPL).
Profile
Apple Inc. (AAPL) is a global leader in consumer electronics, software, and services. Its ecosystem of products — including the iPhone, iPad, Mac, Apple Watch, and AirPods — is complemented by fast-growing segments like Services (App Store, Apple Music, iCloud) and Wearables. Apple’s brand power, customer loyalty, and integrated hardware-software model contribute to a durable economic moat. With a history of strong free cash flow generation and an aggressive capital return strategy, Apple remains a favorite among long-term investors.
DCF Analysis
Inputs
- Discount Rate: 8.0%
- Terminal Growth Rate: 2.5%
- WACC: 7.5%
Forecasted Free Cash Flows (FCFs) in billions
| Year | FCF | Present Value |
|---|---|---|
| 2025 | 110 | 101.73 |
| 2026 | 118 | 101.77 |
| 2027 | 126 | 101.58 |
| 2028 | 134 | 101.20 |
| 2029 | 142 | 100.70 |
Total Present Value of FCFs = 506.98 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (142 × 1.025) / (0.08 – 0.025)
Terminal Value = 145.55 / 0.055 = 2,646.36 billion
Present Value of Terminal Value
PV of Terminal Value = 2,646.36 / (1.08^5)
PV of Terminal Value = 2,646.36 / 1.4693 = 1,801.23 billion
Enterprise Value Calculation
Enterprise Value = PV of FCFs + PV of Terminal Value
Enterprise Value = 506.98 + 1,801.23 = 2,308.21 billion
Net Debt Calculation
Net Debt = Debt – Cash
Net Debt = 106.63 – 65.17 = 41.46 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
Equity Value = 2,308.21 – 41.46 = 2,266.75 billion
Per-Share DCF Value
Shares Outstanding = 15.12 billion
Per-Share DCF Value = 2,266.75 / 15.12 = $149.89
Conclusion
- DCF Value: $149.89
- Current Price: $200.42
- Margin of Safety: -33.6%
Based on our DCF valuation, Apple appears to be trading above its intrinsic value. The estimated DCF value of $149.89 is notably below the current share price of $200.42, implying a negative margin of safety of 33.6%.
While Apple’s capital efficiency, brand power, and cash-generating capabilities remain impressive, investors must weigh whether today’s valuation fully prices in its growth trajectory — or stretches expectations a bit too far.
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