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 on our screens, Apple Inc ().
ProfileApple 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 PerformanceOver the past twelve months the share price is up 19.61%.Source: Google Finance
Inputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 2996.61 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 1869.14 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 526.87 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 2396.01 billionNet DebtNet Debt = Total Debt – Total Cash = 39.50 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 2356.51 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $155.85
Conclusion
Based on the DCF valuation, the stock is overvalued. The DCF value of $155.85 share is lower than the current market price of $229. The Margin of Safety is -46.93%.
