Applied Portfolio Management AAPL Apple Inc. Sector ... · touch, iPod nano, and iPod shuffle. The...

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Applied Portfolio Management Analysts: Alexander Anguiano, Bryan Lunzmann and Sam Olberding Report Date: 4/4/2015 Market Cap (mm) $671,725 Annual Dividend $1.85 2-Yr Beta (S&P 500 Index) 0.77 Return on Capital 179.8% Dividend Yield 1.7% Annualized Alpha 40.0% Compared With: EPS (ttm) $7.44 Price/Earnings (ttm) 14.8 Institutional Ownership 5.7% Google Inc. Current Price $110.38 Economic Value-Added (ttm) $37,161 Short Interest (% of Shares) 1.0% Hewlett-Packard Company 12-mo. Target Price $140.00 Free Cash Flow Margin 27.3% Days to Cover Short 1.1 and the S&P 500 Index Business Description Total Revenue 19.1% Free Cash Flow 14.6% EBIT 15.8% Total Invested Capital 26.6% NOPAT 14.8% Total Assets 25.8% Earnings Per Share 17.5% Economic Value-Added 14.4% Dividends Per Share N/A Market Value-Added 23.5% 2010 2011 2012 2013 2014 28.2% 31.2% 35.3% 28.7% 28.7% 25.3% 27.8% 26.5% 26.1% 27.3% 4.8% 6.9% 8.4% 7.1% 5.9% 0.0% 0.0% 0.5% 2.0% 1.6% 2010 2011 2012 2013 2014 2.20 4.01 6.38 5.72 6.49 0.00 0.00 0.38 1.64 1.82 2.18 3.96 6.32 5.59 6.37 1.27 4.07 5.23 4.86 6.52 Datasource: Capital IQ Margins and Yields Operating Margin Per Share Metrics Earnings NOPAT Free Cash Flow Dividends Free Cash Flow Margin Earnings Yield Dividend Yield Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets; Mac, a line of desktop and portable personal computers; and iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, and iPod shuffle. The company also provides iTunes Investment Thesis ANNUALIZED 3-YEAR CAGR After examining the macro-environment we conclude that the economy is in full expansion. When the original investment thesis was formed the technology sector was underweighted in the portfolio, whereas it is now the most overweighted sector in our portfolio. The inital thesis was correct regarding Apple's strong competitive advantage shown by their large ROIC-WACC spread. Metrics such as EBIT & NOPAT growing at slower rates than Revenues give us cause for concern, although they are still able to flow revenue dollars to the bottom line as evidenced by their continued growth in FCF. After a conservative forecast, we have concluded that Apple is slighty under- valued. We recommend a hold. Apple Inc. Sector: Information Technology HOLD AAPL -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% AAPL ^SPX -40% -20% 0% 20% 40% 60% 80% AAPL GOOGL HPQ 0 5 10 15 20 25 2009 2010 2011 2012 2013 2014 Price/Earnings Price/Free Cash Flow $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 2009 2010 2011 2012 2013 2014 EBIT Net Operating Profit After Tax $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 2009 2010 2011 2012 2013 2014 Economic Value-Added Market Valued-Added 0% 50% 100% 150% 200% 250% 300% 2009 2010 2011 2012 2013 2014 ROA ROE ROIC

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  • Applied Portfolio ManagementAnalysts: Alexander Anguiano,

    Bryan Lunzmann and Sam Olberding

    Report Date: 4/4/2015

    Market Cap (mm) $671,725 Annual Dividend $1.85 2-Yr Beta (S&P 500 Index) 0.77Return on Capital 179.8% Dividend Yield 1.7% Annualized Alpha 40.0% Compared With:

    EPS (ttm) $7.44 Price/Earnings (ttm) 14.8 Institutional Ownership 5.7% Google Inc.Current Price $110.38 Economic Value-Added (ttm) $37,161 Short Interest (% of Shares) 1.0% Hewlett-Packard Company

    12-mo. Target Price $140.00 Free Cash Flow Margin 27.3% Days to Cover Short 1.1 and the S&P 500 Index

    Business Description

    Total Revenue 19.1% Free Cash Flow 14.6%EBIT 15.8% Total Invested Capital 26.6%

    NOPAT 14.8% Total Assets 25.8%Earnings Per Share 17.5% Economic Value-Added 14.4%

    Dividends Per Share N/A Market Value-Added 23.5%

    2010 2011 2012 2013 2014

    28.2% 31.2% 35.3% 28.7% 28.7%25.3% 27.8% 26.5% 26.1% 27.3%

    4.8% 6.9% 8.4% 7.1% 5.9%0.0% 0.0% 0.5% 2.0% 1.6%

    2010 2011 2012 2013 2014

    2.20 4.01 6.38 5.72 6.490.00 0.00 0.38 1.64 1.822.18 3.96 6.32 5.59 6.371.27 4.07 5.23 4.86 6.52

    Datasource: Capital IQ

    Margins and Yields

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    Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets; Mac, a line of desktop and portable personal computers; and iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, and iPod shuffle. The company also provides iTunes

    Investment Thesis

    ANNUALIZED 3-YEAR CAGR

    After examining the macro-environment we conclude that the economy is in full expansion. When the original investment thesis was formed the technology sector was underweighted in the portfolio, whereas it is now the most overweighted sector in our portfolio. The inital thesis was correct regarding Apple's strong competitive advantage shown by their large ROIC-WACC spread. Metrics such as EBIT & NOPAT growing at slower rates than Revenues give us cause for concern, although they are still able to flow revenue dollars to the bottom line as evidenced by their continued growth in FCF. After a conservative forecast, we have concluded that Apple is slighty under-valued. We recommend a hold.

    Apple Inc. Sector: Information Technology HOLDAAPL

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  • AAPL Analysis Analysts: Alexander Anguiamo, Bryan Lunzmann and Sam Olberding

    AAPL Apple Inc. Sector Information Technology2009 2010 2011 2012 2013 2014 Average Manual 2015E 2016E 2017E 2018E 2019E

    Total Revenue 42,905 65,225 108,249 156,508 170,910 182,795 33.6% N/A 217,526 226,227 233,014 238,839 243,616Cost of Goods Sold 25,683 39,541 64,431 87,846 106,606 112,258

    Gross Profit 17,222 25,684 43,818 68,662 64,304 70,537 40.0% 39.0% 84,835 88,229 90,875 93,147 95,010SG&A Expense 4,149 5,517 7,599 10,040 10,830 11,993R&D Expense 1,333 1,782 2,429 3,381 4,475 6,041Dep. & Amort. 0 0 0 0 0 0Other Oper. Exp. 31,165 46,840 74,459 101,267 121,911 130,292

    Operating Income 11,740 18,385 33,790 55,241 48,999 52,503 30.4% N/A 61,995 63,344 62,914 63,292 63,340Interest Expense 0 0 0 0 (136) (384)Other Non-Oper. Exp. (81) (156) (104) (566) (324) (226)

    EBT ex-Unusuals 12,066 18,540 34,205 55,763 50,155 53,688

    Total Unusual Exp. 0 0 0 0 0 (205)Earnings Before Tax 12,066 18,540 34,205 55,763 50,155 53,483

    Income Tax Expense 3,831 4,527 8,283 14,030 13,118 13,973Net Income 8,235 14,013 25,922 41,733 37,037 39,510 23.1% 21.2% 46,116 47,960 49,399 50,634 51,647

    Basic EPS 1.32 2.20 4.01 6.38 5.72 6.49 7.98 8.64 9.18 9.60 9.79Total Common Shares 6,251 6,366 6,470 6,544 6,477 6,086 -0.5% N/A 5,781 5,550 5,384 5,276 5,276Dividends Per Share 0.00 0.00 0.00 0.38 1.64 1.82 0.0% N/A 1.88 1.95 2.01 2.06 2.10

    2010 2011 2012 2013 2014 Average Manual 2015E 2016E 2017E 2018E 2019E

    1. Revenue Growth 52.0% 66.0% 44.6% 9.2% 7.0% 33.6% 19.0% 4.0% 3.0% 2.5% 2.0%2. Gross Margin 39.4% 40.5% 43.9% 37.6% 38.6% 40.0% 39.0%3. Operating Margin 28.2% 31.2% 35.3% 28.7% 28.7% 30.4% 28.5% 28.0% 27.0% 26.5% 26.0%4. Net Margin 21.5% 23.9% 26.7% 21.7% 21.6% 23.1% 21.2%5. Common Shares Growth 1.8% 1.6% 1.1% -1.0% -6.0% -0.5% -5.0% -4.0% -3.0% -2.0% 0.0%6. Dividend Growth 0.0% 0.0% 0.0% 331.6% 11.0% 0.0% 3.5% 3.5% 3.0% 2.5% 2.0%

    4. Net Income 5. Total Common Shares 6. Dividends Per Share

    Historical Growth and Margins Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values

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  • AAPL Analysis. Datasource: CapitalIQ Balance Sheet Forecast, Page 3 of 14 Analysts: Alexander Anguiamo, Bryan Lunzmann and Sam Olberding

    AAPL Apple Inc. Sector Information TechnologyASSETS 2009 2010 2011 2012 2013 2014 Average Manual 2015E 2016E 2017E 2018E 2019E

    Cash and Equivalents 5,263 11,261 9,815 10,746 14,259 13,844 9.8% 7.5% 16,314 16,967 17,476 17,913 18,271Short-Term Investments 18,201 14,359 16,137 18,383 26,287 11,233

    Total Cash & ST Invest. 23,464 25,620 25,952 29,129 40,590 25,158

    Total Receivables 5,057 9,924 11,717 18,692 20,641 27,219 13.0% N/A 28,257 29,387 30,268 31,025 31,646Inventory 455 1,051 776 791 1,764 2,111 1.0% N/A 2,184 2,272 2,340 2,398 2,446Prepaid Expenses 0 0 0 0 0 0

    Total Current Assets 31,555 41,678 44,988 57,653 73,286 68,531 44.5% N/A 81,572 83,704 85,050 85,982 86,484

    Gross PPE 4,667 7,234 11,768 21,887 28,519 39,015Accumulated Depr. (1,713) (2,466) (3,991) (6,435) (11,922) (18,391)

    Net PPE 2,954 4,768 7,777 15,452 16,597 20,624 9.1% 12.5% 25,015 27,147 29,127 29,855 30,452

    Long-Term Investments 10,528 25,391 55,618 92,122 106,215 130,162Goodwill 206 741 896 1,135 1,577 4,616

    Total Assets 47,501 75,183 116,371 176,064 207,000 231,839 116.6% N/A 278,433 294,095 307,578 315,268 321,573

    LIABILITIES AND EQUITY 8,221 15,656 19,461 27,924 30,794 42,224Accounts Payable 5,601 12,015 14,632 21,175 22,367 30,196 Note: Forecasting Payables + Accruals together in row 19 belowAccrued Expenses 2,620 3,641 4,829 6,749 8,427 12,028 20.2% 19.0% 41,330 42,983 44,273 45,379 46,287Short-Term Debt 0 0 0 0 0 6,308

    Total Current Liabilities 11,506 20,722 27,970 38,542 43,658 63,448 28.5% 28.0% 60,907 63,344 65,244 66,875 68,212

    Long-Term Debt 0 0 0 0 16,960 28,987 5.8% N/A 47,856 54,295 60,584 66,875 24,362Pension Benefits 0 0 0 0 0 0 0 0 0 0 16,960 35,295

    Total Liabilities 15,861 27,392 39,756 57,854 83,451 120,292 Note: Forecasting ST Debt + LT Debt together in row 22 above

    Preferred Equity 0 0 0 0 0 0Common Stock & APIC 8,210 10,668 13,331 16,422 19,764 23,313Retained Earnings 23,353 37,169 62,841 101,289 104,256 87,152Treasury Stock 0 0 0 0 0 0Total Common Equity 31,640 47,791 76,615 118,210 123,549 111,547

    Total Equity 31,640 47,791 76,615 118,210 123,549 111,547 70.6% N/A 130,516 131,212 130,488 131,362 133,989Total Liab. and Equity 47,501 75,183 116,371 176,064 207,000 231,839

    2010 2011 2012 2013 2014 Average Manual 2015E 2016E 2017E 2018E 2019E1. Cash and Equivalents 17.3% 9.1% 6.9% 8.3% 7.6% 9.8% 7.5%2. Total Receivables 15.2% 10.8% 11.9% 12.1% 14.9% 13.0%3. Inventory 1.6% 0.7% 0.5% 1.0% 1.2% 1.0%

    Percent of Sales Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values

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  • AAPL Analysis. Datasource: CapitalIQ Balance Sheet Forecast, Page 4 of 14 Analysts: Alexander Anguiamo, Bryan Lunzmann and Sam Olberding

    2010 2011 2012 2013 2014 Average Manual 2015E 2016E 2017E 2018E 2019E4. Total Current Assets 63.9% 41.6% 36.8% 42.9% 37.5% 44.5% 37.5% 37.0% 36.5% 36.0% 35.5%5. Net PPE 7.3% 7.2% 9.9% 9.7% 11.3% 9.1% 12.5% 11.5% 12.0%6. Total Assets 115.3% 107.5% 112.5% 121.1% 126.8% 116.6% 128.0% 130.0% 132.0% 132.0% 132.0%7. Payables and Accruals 24.0% 18.0% 17.8% 18.0% 23.1% 20.2% 19.0%8. Total Current Liabilities 31.8% 25.8% 24.6% 25.5% 34.7% 28.5% 28.0%9. Total Debt 0.0% 0.0% 0.0% 9.9% 19.3% 5.8% 22.0% 24.0% 26.0% 28.0% 10.0%10. Total Equity 73.3% 70.8% 75.5% 72.3% 61.0% 70.6% 60.0% 58.0% 56.0% 55.0% 55.0%

    7. Payables and Accruals 8. Total Current Liabilities 9. Total Debt

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  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 5 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    AAPL Apple Inc. Sector Information Technology Report Date 4/4/2015 2009

    2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Total Revenue 42,905 65,225 108,249 156,508 170,910 182,795 217,526 226,227 233,014 238,839 243,616Gross Profit 17,222 25,684 43,818 68,662 64,304 70,537 84,835 88,229 90,875 93,147 95,010Operating Income 11,740 18,385 33,790 55,241 48,999 52,503 61,995 63,344 62,914 63,292 63,340Net Income 8,235 14,013 25,922 41,733 37,037 39,510 46,116 47,960 49,399 50,634 51,647Retained Earnings 23,353 37,169 62,841 101,289 104,256 87,152 122,377 159,517 198,105 237,880 278,450Total Common Shares 6,251 6,366 6,470 6,544 6,477 6,086 5,781 5,550 5,384 5,276 5,276Total Diluted Shares 6,349 6,473 6,557 6,617 6,522 6,123 5,817 5,584 5,416 5,308 5,308Earnings Per Share $1.32 $2.20 $4.01 $6.38 $5.72 $6.49 $7.98 $8.64 $9.18 $9.60 $9.79Dividends Per Share $0.00 $0.00 $0.00 $0.38 $1.64 $1.82 $1.88 $1.95 $2.01 $2.06 $2.10

    2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Cash and Equivalents 5,263 11,261 9,815 10,746 14,259 13,844 16,314 16,967 17,476 17,913 18,271Total Receivables 5,057 9,924 11,717 18,692 20,641 27,219 28,257 29,387 30,268 31,025 31,646Inventory 455 1,051 776 791 1,764 2,111 2,184 2,272 2,340 2,398 2,446Total Current Assets 31,555 41,678 44,988 57,653 73,286 68,531 81,572 83,704 85,050 85,982 86,484Net PPE 2,954 4,768 7,777 15,452 16,597 20,624 25,015 27,147 29,127 29,855 30,452Total Assets 47,501 75,183 116,371 176,064 207,000 231,839 278,433 294,095 307,578 315,268 321,573Payables and Accruals 8,221 15,656 19,461 27,924 30,794 42,224 41,330 42,983 44,273 45,379 46,287Total Current Liabilities 11,506 20,722 27,970 38,542 43,658 63,448 60,907 63,344 65,244 66,875 68,212Total Debt 0 0 0 0 16,960 35,295 47,856 54,295 60,584 66,875 24,362Total Equity 31,640 47,791 76,615 118,210 123,549 111,547 130,516 131,212 130,488 131,362 133,989

    Historical Income Statement Highlights Forecasted Income Statement Highlights

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  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 6 of 14 Copyright Robert A. Weigand, Ph.D., 2013

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 7 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    Margins 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Gross Profit Margin 40.1% 39.4% 40.5% 43.9% 37.6% 38.6% 39.0% 39.0% 39.0% 39.0% 39.0%Operating Profit Margin 27.4% 28.2% 31.2% 35.3% 28.7% 28.7% 28.5% 28.0% 27.0% 26.5% 26.0%Net Profit Margin 19.2% 21.5% 23.9% 26.7% 21.7% 21.6% 21.2% 21.2% 21.2% 21.2% 21.2%Free Cash Flow Margin 20.9% 12.4% 24.3% 21.9% 18.4% 21.7% 17.0% 19.6% 19.0% 19.2% 18.9%

    Liquidity and Debt 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Days Sales Outstanding 43.02 55.53 39.51 43.59 44.08 54.35 47.41 47.41 47.41 47.41 47.41Inventory Turnover 94.30 62.06 139.50 197.86 96.89 86.59 99.59 99.59 99.59 99.59 99.59Total Debt to Equity 0.0% 0.0% 0.0% 0.0% 13.7% 31.6% 36.7% 41.4% 46.4% 50.9% 18.2%Total Debt to Assets N/A N/A N/A N/A 8.2% 15.2% 17.2% 18.5% 19.7% 21.2% 7.6%

    Profitability 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Total Asset Turnover 0.90 0.87 0.93 0.89 0.83 0.79 0.78 0.77 0.76 0.76 0.76Equity Multiplier 1.50 1.57 1.52 1.49 1.68 2.08 2.13 2.24 2.36 2.40 2.40Return on Assets 17.3% 18.6% 22.3% 23.7% 17.9% 17.0% 16.6% 16.3% 16.1% 16.1% 16.1%Return on Equity 26.0% 29.3% 33.8% 35.3% 30.0% 35.4% 35.3% 36.6% 37.9% 38.5% 38.5%Return on Capital 145.5% 122.5% 241.0% 232.8% 161.1% 179.8% 150.4% 142.7% 133.0% 130.6% 128.1%

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  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 8 of 14 Copyright Robert A. Weigand, Ph.D., 2013

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 9 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    Capital, NOPAT & FCF 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    NOWC 2,554 6,580 2,847 2,305 5,870 950 5,425 5,642 5,812 5,957 6,076Net Fixed Assets 2,954 4,768 7,777 15,452 16,597 20,624 25,015 27,147 29,127 29,855 30,452Total Invested Capital 5,508 11,348 10,624 17,757 22,467 21,574 30,441 32,790 34,938 35,812 36,528Effective Tax Rate 31.8% 24.4% 24.2% 25.2% 26.2% 26.1%NOPAT 8,013 13,896 25,607 41,342 36,183 38,786 45,798 46,794 46,477 46,757 46,792Free Cash Flow N/A 8,056 26,331 34,209 31,473 39,679 36,931 44,446 44,328 45,883 46,076NOPAT Per Share 1.28 2.18 3.96 6.32 5.59 6.37 7.92 8.43 8.63 8.86 8.87FCF/Share N/A 1.27 4.07 5.23 4.86 6.52 6.39 8.01 8.23 8.70 8.73Return on Capital 145.5% 122.5% 241.0% 232.8% 161.1% 179.8% 150.4% 142.7% 133.0% 130.6% 128.1%

    Intrinsic Value of FCFs Valuation ModelValue Creation 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Economic Value-Added 7,639 13,127 24,888 40,139 34,661 37,325 43,736 44,573 44,110 44,331 44,317Market Valued-Added 156,547 245,565 297,709 379,275 395,580 560,178 748,919 759,704 773,202 784,731 844,277PV of Future FCFs 751,228 794,064 821,525 842,969 868,602 887,766 910,975 928,243 946,798 965,055 984,356Value of Non-Oper. Assets 5,263 11,261 9,815 10,746 14,259 13,844 16,314 16,967 17,476 17,913 18,271Total Intrinsic Firm Value 756,491 805,325 831,340 853,715 882,861 901,610 927,290 945,210 964,274 982,968 1,002,627Intrinsic Value of Equity 756,491 805,325 831,340 853,715 865,901 866,315 879,434 890,916 903,690 916,093 978,265Per Share Intrinsic Value $121.02 $126.50 $128.50 $130.46 $133.68 $142.36 $152.12 $160.52 $167.86 $173.64 $185.42 0.10931387Year-End Stock Price $30.10 $46.08 $57.86 $76.02 $80.15 $110.38 $126.41Over (Under) Valuation/Sh ($90.91) ($80.42) ($70.64) ($54.44) ($53.54) ($31.98)% Over (Under) Valued -302.0% -174.5% -122.1% -71.6% -66.8% -29.0%

    Cost of Capital 2014 Weight % Cost Wgt CostEquity Capitalization 671,725 95.0% 6.9% 6.6%

    Total Debt 35,295 5.0% 5.0% 0.2%Preferred Stock 0 0.0% 0.0% 0.0%Value of All Securities 707,020 100.0%Effective Tax Rate 26.1% Long-Term Growth Rate:Risk-Free Rate 2.122% 2.0%5-Yr Beta 0.802 Alternative Beta:Market Risk Premium 6.00%CAPM Cost of Equity 6.936%

    6.774%

    (Tax rate from last historical year used in forecasts)

    Weighted Average Cost of Capital:

    $0$100,000$200,000$300,000$400,000$500,000$600,000$700,000$800,000$900,000

    $0

    $10,000

    $20,000

    $30,000

    $40,000

    $50,000

    Economic Value-Added Market Valued-Added

    $0

    $50

    $100

    $150

    $200

    Year-End Stock Price Per Share Intrinsic Value

    -350%-300%-250%-200%-150%-100%-50%0%

    ($100)

    ($80)

    ($60)

    ($40)

    ($20)

    $0

    2009 2010 2011 2012 2013 2014

    Over (Under) Valuation/Sh % Over (Under) Valued

    $0$5,000

    $10,000$15,000$20,000$25,000$30,000$35,000$40,000

    Total Invested Capital Net Fixed Assets

    $0

    $10,000

    $20,000

    $30,000

    $40,000

    $50,000NOPAT Free Cash Flow

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 10 of 14 Copyright Robert A. Weigand, Ph.D., 2013

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 11 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    Relative Valuation 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Stock Price/Intr. Value $30.10 $46.08 $57.86 $76.02 $80.15 $110.38 $152.12 $160.52 $167.86 $173.64 $185.42Price to Earnings 22.9 20.9 14.4 11.9 14.0 17.0 19.1 18.6 18.3 18.1 18.9Price to Free Cash Flow N/A 36.4 14.2 14.5 16.5 16.9 23.8 20.0 20.4 20.0 21.2Price to Sales 4.4 4.5 3.5 3.2 3.0 3.7 4.0 3.9 3.9 3.8 4.0Price to Book 4.0 3.9 3.2 2.8 2.5 2.9 3.2 3.0 2.9 2.9 3.0Earnings Yield 4.4% 4.8% 6.9% 8.4% 7.1% 5.9% 5.2% 5.4% 5.5% 5.5% 5.3%Dividend Yield N/A N/A N/A 0.5% 2.0% 1.6% 1.2% 1.2% 1.2% 1.2% 1.1%Free Cash Flow Yield N/A 2.7% 7.0% 6.9% 6.1% 5.9% 4.2% 5.0% 4.9% 5.0% 4.7%

    Relative Valuation Pricing Model Adjust 2015E Target Dividend Discount Valuation Model 2015E Ratio Ratio Ratio Metric Price AAPL Apple Inc.

    Price to Earnings 19.1 $7.98 $152.12 3.5% 3.5% 3.0% 2.5% 2.0%Price to Free Cash Flow 23.8 $6.39 $152.12 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019EPrice to Sales 4.0 $37.63 $152.12 $0.00 $0.00 $0.00 $0.38 $1.64 $1.82 $1.88 $1.95 $2.01 $2.06 $2.10Price to Book 3.2 $48.16 $152.12

    1-Yr Div Growth 11.0% PV Dividends 1-4 $6.71 Dividend Yield 1.5%2015E 3-Yr Div Growth N/A PV Perpetual Div. $34.10

    Current Price $126.41 5-Yr Div Growth N/A Intrinsic Value $40.82 If Purchased For: $126.41PV of Free Cash Flows $152.12 Risk-Free Rate 2.12% Current Price $126.41 Expected Return = -19.3% -23.07%Dividend Discount Model $40.82 5-Yr Beta 0.80 ($126.41) $1.88 $1.95 $2.01 $46.33 $44.27Price to Earnings $152.12 Market Premium 6.0% Analyst Notes:Price to Free Cash Flow $152.12 Required Return 6.7% Based on a current dividend of $1.82, expected growth as shown above and an equity requiredPrice to Sales $152.12 Alternative Beta 0.77 return of 6.7%, AAPL is worth $40.82 per share, vs. a current price of $126.41.Price to Book $152.12

    Compared With: Compared With:

    Google Inc. S&P 500 Index

    Hewlett-Packard Company

    Expected Dividend Growth Rates

    Estimated Target Prices vs.

    April 4, 2015Annual Dividend

    05

    10152025303540

    Price to Earnings Price to Free Cash Flow

    0.0

    1.0

    2.0

    3.0

    4.0

    5.0Price to Sales Price to Book

    0%1%2%3%4%5%6%7%8%9%

    Earnings Yield Dividend Yield

    $0

    $20

    $40

    $60

    $80

    $100

    $120

    $140

    $160

    Current Price PV of FreeCash Flows

    DividendDiscount

    Model

    Price toEarnings

    Price to FreeCash Flow

    Price to SalesPrice to Book

    Estimated Target Prices vs. Current Price

    -40%

    -20%

    0%

    20%

    40%

    60%

    80%AAPL GOOGL HPQ

    -10%0%

    10%20%30%40%50%60%70%80%

    AAPL ^SPX

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 12 of 14 Copyright Robert A. Weigand, Ph.D., 2013

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 13 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    Piotroski Financial Fitness Scorecard (10-point scale) 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    Positive Net Income 1 1 1 1 1 1 1 1 1 1Positive Free Cash Flow 1 1 1 1 1 1 1 1 1 1Growing ROA (% change NI > % change TA) 1 1 1 0 0 0 0 0 0 0Earnings Quality (Operating Income > Net Income) 1 1 1 1 1 1 1 1 1 1Total Assets Growing Faster Than Total Liabilities 0 1 1 0 0 1 0 0 0 1Increasing Liquidity (Current Ratio) 1 0 0 1 0 1 0 0 0 0% Change Shares Outstanding (Diluted) < +2.0% 1 1 1 1 1 1 1 1 1 1Expanding Gross Margin 0 1 1 0 1 1 0 0 0 0Asset Turnover (% change sales > % change assets) 0 1 0 0 0 0 0 0 0 1Total Liabilities to Operating Cash Flow (EBIT) < 4.0 1 1 1 1 1 1 1 1 1 1Piotroski Score 7 9 8 6 6 8 5 5 5 7

    Altman Probability of Bankruptcy Z-Score Weight 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E

    (Current Assets-Current Liabilities)/Total Assets 1.200 0.3345 0.1755 0.1303 0.1718 0.0263 0.0891 0.0831 0.0773 0.0727 0.0682Retained Earnings/Total Assets 1.400 0.4349 0.4472 0.4997 0.6850 0.6296 0.4382 0.5826 0.7261 0.8797 1.0356Earnings Before Interest & Tax/Total Assets 3.300 0.8070 0.9582 1.0354 0.7811 0.7473 0.7348 0.7108 0.6750 0.6625 0.6500Market Value Equity/Total Liabilities 0.600 6.4257 5.6493 5.1594 3.7325 3.3505 3.5673 3.2818 3.0618 2.9888 3.1290Sales/Total Assets 0.999 0.8667 0.9293 0.8880 0.8248 0.7877 0.7805 0.7685 0.7568 0.7568 0.7568Altman Score 8.87 8.16 7.71 6.20 5.54 5.61 5.43 5.30 5.36 5.64

    The interpretation for the Altman Score is: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23

    0

    2

    4

    6

    8

    10

    Piotroski Financial Fitness Scorecard (10-pt scale)

    0

    2

    4

    6

    8

    10

    Altman Probability of Bankruptcy Z-Score

  • AAPL Analysis. Datasource: CapitalIQ Financial Analysis & Valuation, Page 14 of 14 Copyright Robert A. Weigand, Ph.D., 2013

    Financial ScorecardIncome Statement ForecastBalance Sheet ForecastFinancial Analysis & ValuationAAPL Scorecard.pdfFinancial Scorecard