Running The Numbers – Apple ($AAPL). Trading at 7.0x Last Years Free Cash Flow. That’s cheap.
At Valuecruncher we have looked at Apple ($AAPL) twice over the last six-months. In June with the $AAPL share price at US$186.10 we produced a valuation of US$146.70.
Then in September with the $AAPL share price at US$131.05 we had a valuation of US$163.98. We are now in early-December and $AAPL has continued to head south – with the market generally. $AAPL is now trading at US$94.00 – just over half the price we first looked at in June. We felt it was time to revisit the valuation of $AAPL from an intrinsic value perspective – and most importantly the assumptions that we are using. We have also completed some high-level comparator analysis looking at the current price of $AAPL against some broad peers using a range of metrics.
Valuecruncher produces a valuation of US$109.55 for $AAPL. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 16.5% above the current share price of US$94.00.
- Revenue: Reuters aggregates 29 analysts covering $AAPL and the mean estimate of 2009 revenues is US$40.6 billion. For our analysis we have used US$36.5 billion in 2009, US$43.5 billion in 2010 and US$49.0 billion in 2011.
- Profitability: We have used an EBITDA margin of 19.0% to 2011. Reuters has $AAPL‘s EBITD margin at 20.8% last year and an average of 16.8% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of US$1.15 billion per annum moving forward.
- Discount Rate: 11.0%. In our June valuation we used a discount rate of 11.0% but dropped that to 10.0% in September. We believe 11.0% is a reasonable assumption in the current market conditions.
- Terminal Growth Rate: 4.0%. In our assumptions we have 2010/11 revenue growth at 12.6% – we have assumed that growth eventually slows to a 3.0% long-term stable growth rate.
Our analysis incorporates the cash on the $AAPL balance sheet – Valuecruncher calculates a net debt number.
Comparator analysis (sometimes called comparison company analysis) is a relative valuation approach. At Valuecruncher we have previously looked at comparator analysis. For $AAPL we looked at a range of broad peers. We calculated enterprise values – market capitalisation plus net debt (long-term borrowings less cash). Then we measured a range of metrics against the enterprise value for $AAPL and the peer set.
We have used the last financial year (LFY) as the base set of metrics. Of the peer group $EBAY and $YHOO had rough LFY performance. The other numbers are interesting. The one that stands out a mile to us however is that $AAPL is currently trading at 7.0x last years free cash flow (FCF). Remove the cash and you can have the business for 7.0x last years FCF – no growth assumed. Wow – that looks cheap.
Using our valuation of US$109.55 that gives a EV/FCF multiple of 8.7x. That is still pretty resonable compared to the peer set.
Play with our assumptions – what does your analysis say?