Valuation

Company Comparables
AAPL MSFT GOOG IBM RIM HPQ Company Ticker
Enterprise Value (EV) 267,769 222,409 186,865 195,656 28,248 101,688 Apple Inc. AAPL
Share Price 304 27 615 143 56 42 Microsoft Corporation MSFT
Shares Outstanding 917 8,560 319 1,240 525 2,270 Google Inc. GOOG
Market Cap 279,030 230,570 196,000 178,060 29,400 96,360 IBM IBM
Weight 28% 23% 19% 18% 3% 10% Intel Corporation INTC
Research In Motion RIM
EPS 15 2 25 11 5 4
Booked Value per Share 47 5 136 18 14 19
Rev per Share 71 8 86 77 32 54

EBITDA 19,316 29,879 11,260 24,294 4,987 17,350

Revenue 65,225 65,759 27,555 95,824 16,861 123,532

Total Debt 0 0 2,122 27,455 0 20,046

Total Cash 11,261 8,161 11,257 9,859 1,152 14,718
Net Debt (11,261) (8,161) (9,135) 17,596 (1,152) 5,328

AAPL MSFT GOOG IBM RIM HPQ Industry Average Implied Price
P/E 19.7x 11.4x 24.6x 12.8x 10.7x 11.6x 14.2x $219
P/S 4.3x 3.5x 7.1x 1.9x 1.7x 0.8x 3.0x $213
P/B 6.4x 4.9x 4.5x 8.0x 4.1x 2.3x 4.8x $225
EV/REV 4.1x 3.4x 6.8x 2.0x 1.7x 0.8x 2.9x $221
EV/CASH 23.8x 27.3x 16.6x 19.8x 24.5x 6.9x 19.0x $246
EV/EBITDA 13.9x 7.4x 16.6x 8.1x 5.7x 5.9x 8.7x $196

AAPL Implied Price $220

AAPL Current Price 304.18
Valuation
Discounted Cash Flow – Growth By Geographic Regions

Geographic Segments 2010 2011 2012 2013 2014 2015

North America
Revenue 25,094 31,368 37,641 43,287 49,780 54,758
% Growth 33% 25% 20% 15% 15% 10%

Japan
Revenue 3,854 5,396 7,014 9,119 11,626 14,533
% Growth 44% 40% 30% 30% 28% 25%

Europe
Revenue 19,320 28,980 40,572 52,744 65,930 79,115
% Growth 64% 50% 40% 30% 25% 20%

Asia Pacific
Revenue 8,345 15,856 25,369 39,322 58,982 73,728
% Growth 167% 90% 60% 55% 50% 25%

Retail
Revenue 8,612 9,904 11,389 13,098 14,408 15,848
% Growth 29% 15% 15% 15% 10% 10%

Revenue 65,225 91,502 121,985 157,569 200,726 237,983

% Growth 52% 40% 33% 29% 27% 19%
Valuation
Discounted Cash Flow – Growth By Geographic Regions
Forward Estimates
AAPL 2009 2010 2011 2012 2013 2014 2015
Sales 42,905 65,225 91,502 121,985 157,569 200,726 237,983
EBIT 11,740 18,385 17,840 24,573 33,705 44,346 52,988
Taxes 3,831 4,527 6,066 8,355 11,460 15,078 18,016
EBIT less Taxes 7,909 13,858 11,775 16,218 22,246 29,268 34,972
Depreciation 423 656 789 1114 1478 1860 2173
Capex 1144 1382 1669 2016 2435 2941 3552
Increases in NWC -1,286 -263 -240 -2,661 -1,733 -3,180 -3,270
FCF 8,474 13,395 11,135 17,977 23,022 31,367 36,863
Terminal Value 508,821
FCF Terminal Value 545,684

Discounted FCFs 12,127 9,126 13,338 15,463 19,072 300,373

Enterprise Value 369,498

Net Debt -25,640 Assumptions
20 yr US Treasury 2.71%
Equity Value 395,138 Beta 1.035
Shares Outstanding 916 Market Risk Premium 7.49%
Cost of Equity 10.46%
Intrinsic Stock Price $431.37
Current Stock Price WACC 10.46%
LT Growth 3.00%
(Discount)/Premium
 Valuation
Discounted Cash Flow – Growth By Products

Income Statement Projection

2011 2012 2013 2014 2015

Revenue
Desktop 7,131.2 8,022.5 8,824.8 9,486.7 9,723.8
% growth 15.0% 12.5% 10.0% 7.5% 2.5%
Portable 13,738.5 16,211.4 18,643.1 21,066.7 22,962.7
% growth 21.8% 18.0% 15.0% 13.0% 9.0%
iPod 8,274.0 8,274.0 8,191.3 7,536.0 6,707.0
% growth 0.0% 0.0% -1.0% -8.0% -11.0%
other music and related services 6,066.2 7,437.2 9,118.0 11,178.7 13,705.1
% growth 22.6% 22.6% 22.6% 22.6% 22.6%
iPhone and other related products and services 47,840.1 83,720.2 134,789.5 188,705.3 228,333.4
% growth 90.0% 75.0% 61.0% 40.0% 21.0%
iPad and related products and services 12,395.0 23,426.6 26,003.5 27,303.6 28,668.8
% growth 150.0% 89.0% 11.0% 5.0% 5.0%
perpherals and other hardware 1,895.6 1,980.9 2,050.3 2,111.8 2,175.1
% total hardware sold 4.5% 4.5% 3.5% 3.0% 3.0%
software, service and other sale 2,804.6 3,057.0 3,271.0 3,467.2 3,675.3
% growth 9.0% 9.0% 7.0% 6.0% 6.0%
Total Revenue 100,145.2 152,129.8 210,891.4 270,855.9 315,951.2
YoY Growth 53.5% 51.9% 38.6% 28.4% 16.6%

Cost Of Goods Sold 66,095.8 100,405.7 139,188.3 178,764.9 208,527.8

% of Revenue 66.0% 66.0% 66.0% 66.0% 66.0%
Gross Profit 34,049.4 51,724.1 71,703.1 92,091.0 107,423.4

Selling General & Admin Exp. 10,014.5 15,213.0 21,089.1 27,085.6 31,595.1
% of Revenue 10.0% 10.0% 10.0% 10.0% 10.0%
R & D Exp. 2,405.7 3,247.7 4,384.4 5,918.9 7,990.5
% growth 35.0% 35.0% 35.0% 35.0% 35.0%
Other Operating Exp 9,029.4 11,169.4 13,816.5 17,091.0 21,141.6
% growth 23.7% 23.7% 23.7% 23.7% 23.7%
Operating Income (EBIT) 12,599.74 22,094.09 32,413.03 41,995.48 46,696.15
Valuation
Discounted Cash Flow – Growth By Products

Discounted Cash Flow Analysis

2011 2012 2013 2014 2015 Terminal Value
EBIT 12,600 22,094 32,413 41,995 46,696
Taxes 4,014 7,039 10,327 13,380 14,877
Ebit Less Taxes 8,585 15,055 22,086 28,616 31,819
D&A 930 1,162 1,453 1,743 2,005
Capex 3,008 4,361 5,669 7,086 8,858
∆ NWC (5,216) (10,059) (11,370) (11,603) (8,726)
Free Cash 11,724 21,915 29,240 34,875 33,691 450,129
Discounted Terminal Value 270,655

Periods 1 2 3 4 5
Discounted Cash Flow 10,590 17,880 21,549 23,216 20,258
Total DCF 364,148

WACC Intrinsic Value

WACC 10.71% Enterprise Value 364,148
CAPM 10.71% Net Debt -25620

Beta 1.068
Shareholder Value 389,768
10 Yr Bond 2.71%
Shares Outstanding 916
Risk Premium 7.49%
Cost of Debt 0%
% Debt 0%
Intrinsic Price 426
Tax rate 35% Current Stock Price 308
LT Growth 3% Gain/Loss 118
% Gain/Loss 38.24%
Football Field
We recommend a strike price of $305