Updated Apple Inc Model – Base Case $537 per Share; Bull Case $630

Posted on 20/07/2011


My analysis of Apple is relatively rough and ready, but I believe a great level of detail is not required given the simple balance sheet and huge gap between the estimate ($537) and the current share price ($390). The key assumptions are as follows:

  • 4Q11 revenue identical to that reported in 3Q11.  Year-on-year revenue growth in each year thereafter of 20%, 15%, 10%, 7.5%, 5%, 5%, 5%.
  • 40% gross margins for FY11 (currently 41% after three quarters), declining to 36% by FY18.
  • SG&A and R&D to remain constant as a proportion of revenues.
  • Tax rate to remain constant.
  • No interest earned on cash balance (for simplicity).
  • No borrowings, no dividends, no acquisitions, no disposals.
  • Cost of equity capital of 10%.
  • A terminal growth rate of 2% per annum.
The model I developed is available to download here.
This base case estimate of Apple’s per-share value is 38% above the current share price, still giving plenty of upside on what I believe are very conservative assumptions given the company’s current rate of revenue growth.  However, given Apple has grown revenues at 78% (yoy YTD), I think a 20% revenue growth estimate for FY12 could be a little on the low side.  If I change the revenue growth assumptions from those given above to 30%, 20%, 15%, 10%, 7.5%, 5%, 5%, then the valuation estimate spat-out by my model is $630 per share, some 62% above the current share price.
Posted in: Investment Ideas