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TLStockPicks (91.15)

Apple DCF

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January 25, 2013 – Comments (7) | RELATED TICKERS: AAPL

Do you believe that Apple's earnings this year will be flat vs. last year? 

Do you believe that Apple will experience less-than-inflationary net income growth the next 4 years?

Do you believe that Apple is lying about its cash and actually has 0 book value?

Do you believe that Apple's market cap (value) will be exactly the same as it is today in 5 years?

Do you believe that Apple will need to spend $10B on capex and whatnot every year to make the above results happen?

Do you believe that the downside risk associated with the above happening is as risky as when you invest in the S&P?  

Because all these assumptions together would roughly give you a value of today's market cap.  Seems a bit ridiculous to me.

(5 year DCF using Y1 earnings of 41.7B, $10B capex, 2% growth, 8% discount rate, $413B residual, and 0 book value)

7 Comments – Post Your Own

#1) On January 25, 2013 at 5:38 PM, shamapant (80.88) wrote:

the only flaw with this is that you shouldn't add book value to DCF. if you think about it, DCF=adjusted to economics reality book value....DCF is the value of the cash flow the assets will produce...there isn't any extra value for those assets b/c if you were to sell those assets, they would be sold AT DCF. So just thought you might want to take that into consideration as it's a misconception that you should add back book value.

 

Altogether tho...I agree, Apple is cheap. 

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#2) On January 25, 2013 at 5:44 PM, TLStockPicks (91.15) wrote:

Shamapant... when it's a stockpile of cash (not generating anything to cash flow nor really included in the residual), i'd add it. 

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#3) On January 25, 2013 at 6:23 PM, chk999 (99.97) wrote:

Given that the cash can't be repatriated without a huge tax hit, I wouldn't be adding it back in.

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#4) On January 25, 2013 at 7:11 PM, TLStockPicks (91.15) wrote:

About half the cash is overseas, and the other half would get taxed 35%.  I guess that justifies a 100% write off of cash...?

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#5) On January 25, 2013 at 7:12 PM, TLStockPicks (91.15) wrote:

whoops I meant that half overseas would be taxed 35%

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#6) On January 26, 2013 at 1:01 PM, ikkyu2 (99.29) wrote:

Reasonable analysis.  I would say only in response to this:

"Do you believe that the downside risk associated with the above happening is as risky as when you invest in the S&P? "

I would say that I believe that any single company is more likely to stumble by itself, than that the entire S+P stumbles except for that one company.  And that's kind of the way you're phrasing this. 

In other words, AAPL is linked tightly to the S+P - indeed, it makes up 3% of it, cap weighted - and I do think that the chances of AAPL staying flat while the S+P continues rising are a lot more likely than AAPL doing well while the rest of the S+P stays flat or takes a dive. 

In other words, my bet is on diversification. 

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#7) On January 26, 2013 at 6:34 PM, Valyooo (99.37) wrote:

The real question to ask, is do you think DCF really matters?  The DCF was good at $600...and it fell to $440 

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