Apple Inc. DCF Valuation: Is The Stock Undervalued?

silver ipad on white table

Image Source: Unsplash
 

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%.

AAPL Chart

AAPL data by YCharts

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%.


More By This Author:

Why Alphabet Inc (GOOGL) Stock Is A Buy?
Microsoft Corp. DCF Valuation: Is The Stock Undervalued?
Tesla Inc. DCF Valuation: Is The Stock Undervalued?

Disclosure: None.

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