Apple Inc.
Valuecruncher has placed a mid-point estimate for Apple at $77.98 per share with a range between $63.15 and $94.00.The current share price is $85.94.
Key Assumptions
Revenue Growth
Apple has experienced rapid revenue growth in the last three years, growing by 33.38%, 68.27% and 38.65% in the last three financial periods. The underlying factor behind the growth of Apple is their continuing innovation, with products such as the iPod, iPhone and OS X. With Apple continuing to develop innovative technologies it is likely that revenues will continue to grow. We have forecasted revenues to grow by 35%, 30% and 25% for the next three periods.
EBIT Margins
Apple’s EBIT margins have also been on the rise from a low of 1.48% in 2004 to a high of 14.59% in 2006. We have forecasted margins to be 17% for 2007 (due, in part, to the release of the iPhone, which has gross margins of around 50%). Apple’s long term EBIT margin is assumed to be 15%. It is not surprising that Apple has higher margins than its comparators (Dell and HP: EBIT margins around 8.5%) as they are moving into small consumer electronics as well as remaining in the lower margin personal computer sector.
Terminal Growth
The terminal growth rate used in this analysis is 4%.
Discount Rate (WACC)
The discount rate applied is 11%.