Apple ($AAPL) announced quarter one results today.  With the $AAPL share price over US$200 - 52-week range US$82.33-215.59 - we decided to have a quick look.

Valuecruncher Interactive Analysts Report For Apple ($AAPL)

We have the comparator group set as Microsoft ($MSFT), IBM ($IBM), Google ($GOOG) and Hewlett-Packard($HPQ). You can change these peer companies on the site. For example you could add:

1. Research In Motion ($RIM) - Interactive Analyst Report For $RIM
2. Palm ($PALM) - Interactive Analyst Report For $PALM
3. Qualcomm ($QCOM) - Interactive Analyst Report For $QCOM

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$189.23 for $AAPL - 6.7% below the current share price. We see $AAPL overvalued at the moment. But how about compared to a peer group?

Comparison Analysis

I changed the peer group companies to $IBM, $RIM, $QCOM and $GOOG.  I am going to look at only one of the metrics we use at Valuecruncher - EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet - market capitalization doesn’t capture different capital structures when comparing companies. EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set.

On an EV/EBITDA basis $AAPLT is trading at 18.6x ($AAPL is being valued at 18.6x last year’s profit at the EBITDA line). A dollar of $AAPL EBITDA is worth more a dollar of $IBM (more than double), $RIM, $QCOM or $GOOG EBITDA. This is despite $AAPL making less margin at the EBITDA line than any of these comparators ($AAPL made a 22.8% EBITDA margin last year comparded with 23.0% at $IBM and 41.6% at $GOOG). There are still some steep expectations being priced into the current share price.

If we lower the $AAPL EV/EBITDA multiple to 17.5x (a slight premium to $QCOM) then this gives a share price of US$187.57 - 7.5% below the current share price. This valuation is in line with our DCF analysis.

Summary

Based on our DCF valuation - $AAPL looks overvalued. Looking at some comparators - the market is valuing $AAPL highly compared to some peers. We believe if you are investing in $AAPL at the current price - you are paying a full price and there are cheaper options available. We know that we will hear about that from the $AAPL fans out there however.

Disclosure: no positions.

It has been a crazy 15 months for the Apple ($AAPL) share price. On the 22 August 2008 $AAPL was trading at $176.79. By 16 January 2009 $AAPL had dropped to $82.33 - down over half (53% down) in under five months. Today $AAPL closed at $190.01 - up over 130% in under nine months. The graph below shows the closing prices over the period. So what do we think about $AAPL?

Valuecruncher Interactive Analysts Report For Apple ($AAPL)

We have the comparator group set as Microsoft ($MSFT), IBM ($IBM), Google ($GOOG) and Hewlett-Packard($HPQ). You can change these peer companies on the site. For example you could add:

1. Research In Motion ($RIM) - Interactive Analyst Report For $RIM
2. Palm ($PALM) - Interactive Analyst Report For $PALM
3. Qualcomm ($QCOM) - Interactive Analyst Report For $QCOM

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$176.16 for $AAPL - 7.3% below the current share price. We see $AAPL overvalued at the moment. But how about compared to a peer group?

Comparison Analysis

I changed the peer group companies to $IBM, $RIM, $PALM and $QCOM.  I am going to look at two of the metrics we use at Valuecruncher - Enterprise Value (EV)/Revenue and EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet - market capitalization doesn’t capture different capital structures when comparing companies.

EV/Revenue shows how a dollar or revenues is being valued by the market against the comparator set. On an EV/Revenue basis $AAPL is trading at 4.5x ($AAPL is being valued at 4.5x last year’s revenues). This compares to $IBM at 1.7x, $RIM at 3.5x, $PALM at 3.4x and $QCOM at 5.8x. $AAPL’s profit margins (at the EBITDA line) are 20.9% of revenues.  A dollar of $AAPL revenues is being valued more than a dollar of $RIM revenues - despite that dollar of revenues producing less profit (on an EBITDA basis) than the $RIM revenues.  A dollar of $AAPL revenues is being valued less than a dollar of $QCOM revenues - but $QCOM produces nearly twice the profit (on an EBITDA basis) as $AAPL.  We would expect the difference between the multiples for $QCOM and $AAPL to be larger - in $QCOM’s favour. There are some big growth expectations for $AAPL - on an EV/Revenue basis there appears to be a premium being paid for $AAPL against the peer group.

If we lower the $AAPL EV/Revenue multiple to 3.75x (a slight premium to $RIM) then this gives a share price of $163.30 - 14% below the current share price.

EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set. On an EV/EBITDA basis $AAPLT is trading at 21.51x ($AAPL is being valued at 21.5x last year’s profit at the EBITDA line). A dollar of $AAPL EBITDA is worth more than double a dollar of $IBM, $RIM or $QCOM EBITDA ($PALM is losing money at the EBITDA line).

If we lower the $AAPL EV/EBITDA multiple to 17.5x (a slight premium to $QCOM) then this gives a share price of $160.06 - 16% below the current share price.

Summary

Based on our DCF valuation - $AAPL looks overvalued. Looking at some comparators - the market is valuing $AAPL highly compared to some peers. We believe if you are investing in $AAPL at the current price - you are paying a full price and there are cheaper options available. We do recognize that there are a lot of $AAPL fans out there however.

Disclosure: no positions.

After our recent post on Microsoft ($MSFT) - people asked for a quick take on Apple ($AAPL). Here it is.

Valuecruncher Interactive Analysts Report For Apple ($AAPL)

We have the comparator group set as Microsoft ($MSFT), IBM ($IBM), Google ($GOOG) and Hewlett-Packard($HPQ). You can change these peer companies on the site. For example you could add:

1. Research In Motion ($RIM) - Interactive Analyst Report For $RIM
2. Palm ($PALM) - Interactive Analyst Report For $PALM
3. Qualcomm ($QCOM) - Interactive Analyst Report For $QCOM

$AAPL’s share price is currently trading at US$160.00. This is well up from the 52-week low of US$78.20. The graph below shows the last 12 months of closing prices.

So what do we think?

Discounted Cash Flow Valuation

We have completed a discounted cash flow valuation using our interactive tools (there is a “discounted cash flow analysis” link just under the company name on the company page). We have populated our model with a mixture of consensus analyst estimates and Valuecruncher estimates. Our analysis produces a valuation of US$161.63 for $AAPL - 1.0% above the current share price. We see $AAPL correctly valued at the moment. But how about compared to a peer group?

Comparison Analysis

I am going to look at two of the metrics we use at Valuecruncher - Enterprise Value (EV)/Revenue and EV/EBITDA. Enterprise Value (EV) is simply market capitalization plus net debt [long-term borrowings less cash]. We use EV to capture the impact of debt and cash on a company’s balance sheet - market capitalization doesn’t capture different capital structures when comparing companies.

EV/Revenue shows how a dollar or revenues is being valued by the market against the comparator set. On an EV/Revenue basis $AAPL is trading at 3.66x ($AAPL is being valued at 3.66x last year’s revenues). This compares to $MSFT at 3.08x, $IBM at 1.70x, $GOOG at 5.73x and $HPQ at 0.91x. $AAPL’s profit margins (at the EBITDA line) are 20.9% of revenues.  A dollar of $AAPL revenues is being valued more than a dollar of $MSFT revenues - despite that dollar of revenues producing just more than half the profit of the $MSFT revenues.  A dollar of $AAPL revenues is being valued twice as much as a dollar of $IBM revenues - despite that dollar of revenues producing a similar level of profit as the $AAPL revenues.  As we have previously noted - that is some big growth expectations for $AAPL.

EV/EBITDA shows how a dollar of profit (measured in as Earnings Before Interest Taxes Depreciation and Amortization) is being valued by the market against the comparator set. On an EV/EBITDA basis $AAPLT is trading at 17.51x ($AAPL is being valued at 17.51x last year’s profit at the EBITDA line). A dollar of $AAPL EBITDA is worth more than double a dollar of $MSFT, $IBM or $HPQ EBITDA. And more than a dollar of $GOOG EBITDA as well. $AAPL is trading at a higher EV/EBITDA multiple than $RIM and $QCOM as well - but it is in the same general ballpark. $RIM is trading at 15.08x and $QCOM at 16.93x.

Summary

Based on our DCF valuation - $AAPL looks correctly valued. Looking at some comparators - the market is valuing $AAPL pretty highly compared to some peers. On an EV/Revenue basis - a dollar of $AAPL revenues is worth more than a dollar of $MSFT revenues even when the dollar of $MSFT revenues produces nearly twice the profits of the $AAPL revenues. We believe if you are investing in $AAPL at the current price - you are paying a full price and there are cheaper options available.

Disclosure: no positions.

At Valuecruncher we have long been an interested observer of Qualcomm (QCOM). QCOM designs, manufactures and markets digital wireless telecommunications products based on technology it has developed (CDMA). QCOM is an example of a company that has successfully commercialised in-house developed intellectual property (IP). This week QCOM announced the settlement of a long-running IP dispute with Nokia (NOK). Based on this settlement QCOM is trading at the top of the stock’s 52-week range. We decided to have a look at some projected financial numbers using our on-line valuation tool to see how the share price shapes up.

QCOM Valuation

QCOMM grew revenues from US$4.88 billion in 2004 to US$8.87 billion in 2007 – a 22% compound annual growth rate. Our assumptions of revenues for the next three years are US$10.5 billion in 2008 growing to US$13.5 billion in 2010 – a 15% compound annual growth rate. We have projected EBITDA margins to grow from 40.0% in 2008 to 45.0% in 2010. We have used a terminal growth rate of 5%. We calculated this terminal growth rate based on year three growth of 11% dropping to a 4.5% stable growth rate by year 10. We believe there is still considerable additional growth in mobile globally to come which QCOM is well positioned for. We used a terminal capital expenditure number of US$1.0 billion. We have used a WACC (discount rate) of 10%.

Valuecruncher valuation model of QCOM with interactive assumptions

Our analysis incorporates the cash on the QCOM balance sheet – Valuecruncher calculates a net debt number.

Our analysis gives a valuation of US$45.11 per share which is 14% below the current share price of US$52.43.

Based on our analysis the current share price looks overvalued. The Nokia settlement is good news but the QCOM share price looks expensive. Play with our assumptions – what does your analysis say?

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.