Apple Inc Valuation – April 2019 #AAPL

Company Profile (excerpt from Reuters): Apple Inc., incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. The Company sells a range of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company’s other operating segments. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $928,509,329,542 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 151.37% Pass
6. Moderate PEmg Ratio PEmg < 20 19.47 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.97 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.86 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.11
MG Growth Estimate 6.57%
MG Value $218.81
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $146.65
MG Value based on 0% Growth $85.97
Market Implied Growth Rate 5.48%
Current Price $196.89
% of Intrinsic Value 89.98%

Apple Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $7.03 in 2015 to an estimated $10.11 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.48% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $71.63. The company pays a dividend of $2.72 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 19.47, which was below the industry average of 35.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.09.

Apple Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$24.09
Graham Number $71.63
PEmg 19.47
Current Ratio 1.30
PB Ratio 7.97
Current Dividend $2.72
Dividend Yield 1.38%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $140,828,000,000
Total Current Liabilities $108,283,000,000
Long-Term Debt $92,989,000,000
Total Assets $373,719,000,000
Intangible Assets $0
Total Liabilities $255,827,000,000
Shares Outstanding (Diluted Average) 4,773,252,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.12
Sep2018 $11.91
Sep2017 $9.21
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.11
Sep2018 $9.75
Sep2017 $8.37
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – November 2018 $AAPL
Apple Inc Valuation – February 2018 $AAPL
Apple Inc Valuation – January 2017 $AAPL
Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL

Other ModernGraham posts about related companies

Maxim Integrated Products Inc Valuation – April 2019 #MXIM
Keysight Technologies Inc Valuation – April 2019 #KEYS
Lam Research Corp Valuation – April 2019 #LRCX
Emerson Electric Co Valuation – April 2019 #EMR
Skyworks Solutions Inc Valuation – March 2019 #SWKS
Garmin Ltd Valuation – March 2019 #GRMN
Hewlett Packard Enterprise Co Valuation – March 2019 #HPE
Fortive Corp Valuation – March 2019 #FTV
Analog Devices Inc Valuation – March 2019 #ADI
IPG Photonics Corp Valuation – March 2019 #IPGP

Disclaimer:

The author held a long position in AAPL but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Apple Inc Valuation – November 2018 $AAPL

Company Profile (excerpt from Reuters): Apple Inc., incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. The Company sells a range of related software, services, accessories, networking solutions and third-party digital content and applications. The Company’s segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company’s other operating segments. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $970,291,506,431 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 174.94% Pass
6. Moderate PEmg Ratio PEmg < 20 18.44 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.25 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

 

EPSmg $11.09
MG Growth Estimate 8.65%
MG Value $286.14
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $160.81
MG Value based on 0% Growth $94.27
Market Implied Growth Rate 4.97%
Current Price $204.47
% of Intrinsic Value 71.46%

Apple Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $7.03 in 2015 to an estimated $11.09 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.97% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $81.34. The company pays a dividend of $2.72 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 18.44, which was below the industry average of 38.82, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.25.

Apple Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.25
Graham Number $81.34
PEmg 18.44
Current Ratio 1.12
PB Ratio 9.25
Current Dividend $2.72
Dividend Yield 1.33%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $131,339,000,000
Total Current Liabilities $116,866,000,000
Long-Term Debt $93,735,000,000
Total Assets $365,725,000,000
Intangible Assets $0
Total Liabilities $258,578,000,000
Shares Outstanding (Diluted Average) 4,847,547,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.05
Sep2018 $11.91
Sep2017 $9.21
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $11.09
Sep2018 $9.75
Sep2017 $8.37
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – February 2018 $AAPL
Apple Inc Valuation – January 2017 $AAPL
Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL

Other ModernGraham posts about related companies

Littelfuse Inc Valuation – September 2018 $LFUS
CTS Corporation Valuation – August 2018 $CTS
Kopin Corp Valuation – August 2018 $KOPN
Knowles Corp Valuation – August 2018 $KN
Cree Inc Valuation – August 2018 $CREE
Cray Inc Valuation – August 2018 $CRAY
Kulicke & Soffa Industries Inc Valuation – August 2018 $KLIC
Keysight Technologies Inc Valuation – August 2018 $KEYS
Semtech Corp Valuation – August 2018 $SMTC
Cohu Inc Valuation – August 2018 $COHU

Disclaimer:

The author held a long position in AAPL but did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Apple Inc Valuation – February 2018 $AAPL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apple Inc (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Marketwatch): Apple, Inc. engages in the design, manufacture, and marketing of mobile communication, media devices, personal computers, and portable digital music players. It operates through the following geographical segments: Americas, Europe, Greater China, Japan, and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment consists of European countries, as well as India, the Middle East, and Africa. The Greater China segment comprises of China, Hong Kong, and Taiwan. The Rest of Asia Pacific segment includes Australia and Asian countries not included in the reportable operating segments of the company. The company was founded by Steven Paul Jobs, Ronald Gerald Wayne, and Stephen G. Wozniak on April 1, 1976 and is headquartered in Cupertino, CA.

AAPL Chart

AAPL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $873,716,604,806 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.24 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 283.01% Pass
6. Moderate PEmg Ratio PEmg < 20 18.31 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.33 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.24 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.71 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.40
MG Growth Estimate 10.20%
MG Value $271.73
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $136.36
MG Value based on 0% Growth $79.93
Market Implied Growth Rate 4.91%
Current Price $172.19
% of Intrinsic Value 63.37%

Apple Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $5.6 in 2014 to an estimated $9.4 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $80.01. The company pays a dividend of $2.4 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 18.31, which was below the industry average of 41.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-23.81.

Apple Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$23.81
Graham Number $80.01
PEmg 18.34
Current Ratio 1.24
PB Ratio 6.34
Current Dividend $2.40
Dividend Yield 1.39%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $143,810,000,000
Total Current Liabilities $115,788,000,000
Long-Term Debt $103,922,000,000
Total Assets $406,794,000,000
Intangible Assets $8,038,000,000
Total Liabilities $266,595,000,000
Shares Outstanding (Diluted Average) 5,157,787,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $10.88
Sep2017 $9.21
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13
Sep1998 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.40
Sep2017 $8.37
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04
Sep2002 $0.06

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – January 2017 $AAPL
Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL
27 Companies in the Spotlight This Week – 12/20/14

Other ModernGraham posts about related companies

Lam Research Corp Valuation – September 2017 $LRCX
Vicor Corp Valuation – Initial Coverage $VICR
Emerson Electric Co Valuation – August 2017 $EMR
General Cable Corporation Valuation – Initial Coverage $BGC
3D Systems Corp Valuation – Initial Coverage $DDD
Teradyne Inc Valuation – Initial Coverage $TER
Diebold Nixdorf Inc Valuation – Initial Coverage $DBD
Tech Data Corp Valuation – Initial Coverage $TECD
Teledyne Technologies Inc Valuation – Initial Coverage $TDY
Skyworks Solutions Inc Valuation – April 2017 $SWKS

Disclaimer:

The author held a long position in AAPL but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Apple Inc Valuation – January 2017 $AAPL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apple Inc (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

AAPL Chart

AAPL data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $631,200,766,813 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.35 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 477.43% Pass
6. Moderate PEmg Ratio PEmg < 20 15.03 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.15 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.71 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $7.98
MG Growth Estimate 10.25%
MG Value $231.48
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $115.74
MG Value based on 0% Growth $67.85
Market Implied Growth Rate 3.27%
Current Price $119.97
% of Intrinsic Value 51.83%

Apple Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.74 in 2013 to an estimated $7.98 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $65.98. The company pays a dividend of $2.18 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 15.03, which was below the industry average of 28.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.74.

Apple Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.74
Graham Number $65.98
PEmg 15.03
Current Ratio 1.35
PB Ratio 5.15
Current Dividend $2.18
Dividend Yield 1.82%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $106,869,000,000
Total Current Liabilities $79,006,000,000
Long-Term Debt $75,427,000,000
Total Assets $321,686,000,000
Intangible Assets $8,620,000,000
Total Liabilities $193,437,000,000
Shares Outstanding (Diluted Average) 5,500,281,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.05
Sep2016 $8.31
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13
Sep1998 $0.08
Sep1997 -$0.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.98
Sep2016 $7.70
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04
Sep2002 $0.06
Sep2001 $0.06

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – August 2016 $AAPL
Apple Inc Valuation – February 2016 $AAPL
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL
27 Companies in the Spotlight This Week – 12/20/14
Apple Inc. Quarterly Valuation – December 2014 $AAPL

Other ModernGraham posts about related companies

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Advanced Micro Devices Inc Valuation – January 2017 $AMD
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Ciena Corporation Valuation – Initial Coverage $CIEN
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Disclaimer:

The author held a long position in Apple Inc (AAPL) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Apple Inc Valuation – August 2016 $AAPL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apple Inc (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

AAPL Chart

AAPL data by YCharts

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $596,470,620,817 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 743.30% Pass
6. Moderate PEmg Ratio PEmg < 20 14.30 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.73 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.09 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AAPL value chart August 2016

EPSmg $7.65
MG Growth Estimate 14.98%
MG Value $294.16
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $110.93
MG Value based on 0% Growth $65.03
Market Implied Growth Rate 2.90%
Current Price $109.38
% of Intrinsic Value 37.18%

Apple Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.83 in 2012 to an estimated $7.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.9% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Apple Inc. revealed the company was trading above its Graham Number of $65.67. The company pays a dividend of $2.13 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 14.3, which was below the industry average of 22.64, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.59.

Apple Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

AAPL charts August 2016

Net Current Asset Value (NCAV) -$15.59
Graham Number $65.67
PEmg 14.30
Current Ratio 1.31
PB Ratio 4.73
Current Dividend $2.13
Dividend Yield 1.95%
Number of Consecutive Years of Dividend Growth 5

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $93,761,000,000
Total Current Liabilities $71,486,000,000
Long-Term Debt $68,939,000,000
Total Assets $305,602,000,000
Intangible Assets $8,767,000,000
Total Liabilities $179,061,000,000
Shares Outstanding (Diluted Average) 5,472,781,000

Earnings Per Share History

Next Fiscal Year Estimate $8.17
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13
Sep1998 $0.08
Sep1997 -$0.30
Sep1996 -$0.24

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.65
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04
Sep2002 $0.06
Sep2001 $0.06
Sep2000 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Apple Inc Valuation – February 2016 $AAPL
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL
My Personal Holdings: Apple Inc. – September 2015 Update $AAPL
27 Companies in the Spotlight This Week – 12/20/14
Apple Inc. Quarterly Valuation – December 2014 $AAPL

Other ModernGraham posts about related companies

Ametek Inc Valuation – August 2016 $AME
MTS Systems Corp Valuation – July 2016 $MTSC
Seagate Technology PLC Valuation – July 2016 $STX
Broadcom Limited Valuation – July 2016 $AVGO
Microchip Technology Inc Valuation – July 2016 $MCHP
Jabil Circuit Inc Valuation – July 2016 $JBL
KLA-Tencor Corp Valuation – July 2016 $KLAC
Linear Technology Corp Valuation – July 2016 $LLTC
Arrow Electronics Inc Valuation – July 2016 $ARW
Lam Research Corp Valuation – June 2016 $LRCX

Disclaimer:

The author held a long position in Apple Inc (AAPL) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Apple Inc Valuation – February 2016 $AAPL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apple Inc (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $512,721,279,857 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.00 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 752.14% Pass
6. Moderate PEmg Ratio PEmg < 20 12.29 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.14 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.00 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 418.93 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

AAPL value chart February 2016

EPSmg $7.73
MG Growth Estimate 15.00%
MG Value $297.73
Opinion Undervalued
MG Value based on 3% Growth $112.13
MG Value based on 0% Growth $65.73
Market Implied Growth Rate 1.89%
Current Price $95.01
% of Intrinsic Value 31.91%

Apple Inc does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.83 in 2012 to an estimated $7.73 for 2016.  This level of earnings growth outpaces the market’s implied estimate of 1.89% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

AAPL charts February 2016

Net Current Asset Value (NCAV) -$15.87
Graham Number $66.20
PEmg 12.29
Current Ratio 1.00
PB Ratio 4.14
Dividend Yield 2.14%
Number of Consecutive Years of Dividend Growth 5

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $76,219,000,000
Total Current Liabilities $76,092,000,000
Long-Term Debt $53,204,000,000
Total Assets $293,284,000,000
Intangible Assets $9,126,000,000
Total Liabilities $165,017,000,000
Shares Outstanding (Diluted Average) 5,594,127,000

Earnings Per Share History

Next Fiscal Year Estimate $8.42
Sep2015 $9.22
Sep2014 $6.45
Sep2013 $5.68
Sep2012 $6.31
Sep2011 $3.95
Sep2010 $2.16
Sep2009 $1.30
Sep2008 $0.97
Sep2007 $0.56
Sep2006 $0.32
Sep2005 $0.22
Sep2004 $0.05
Sep2003 $0.01
Sep2002 $0.01
Sep2001 -$0.01
Sep2000 $0.16
Sep1999 $0.13
Sep1998 $0.08
Sep1997 -$0.30
Sep1996 -$0.24

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.73
Sep2015 $7.03
Sep2014 $5.60
Sep2013 $4.74
Sep2012 $3.83
Sep2011 $2.32
Sep2010 $1.36
Sep2009 $0.86
Sep2008 $0.57
Sep2007 $0.32
Sep2006 $0.18
Sep2005 $0.09
Sep2004 $0.03
Sep2003 $0.04
Sep2002 $0.06
Sep2001 $0.06
Sep2000 $0.05

Recommended Reading:

Other ModernGraham posts about the company

My Personal Holdings: Apple Inc. – September 2015 Update $AAPL
27 Companies in the Spotlight This Week – 12/20/14
Apple Inc. Quarterly Valuation – December 2014 $AAPL
23 Companies to Research This Week – 9/13/14

Other ModernGraham posts about related companies

Ametek Inc Valuation – February 2016 Update $AME
MTS Systems Corp Valuation – February 2016 Update $MTSC
Linear Technology Corp Valuation – January 2016 Update $LLTC
Seagate Technology PLC Valuation – January 2016 Update $STX
Microchip Technology Inc Valuation – January 2016 Update $MCHP
Avago Technologies Ltd Valuation – January 2016 Update $AVGO
KLA-Tencor Corp Valuation – January 2016 Update $KLAC
Lam Research Corp Valuation – January 2016 Update $LRCX
Amphenol Corporation Valuation – January 2016 Update $APH
Arrow Electronics Inc Valuation – December 2015 Update $ARW

Disclaimer:

The author held a long position in Apple Inc but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

My Personal Holdings: Apple Inc. – September 2015 Update $AAPL

Personal Holdings

I am often asked if I utilize the methods I teach here on ModernGraham, and the answer is yes.  I fully believe that Benjamin Graham’s methodology can be used in the market today, especially after taking time to analyze each one of his ideas and modernize it as needed.  The ModernGraham method can be a great way to narrow down investment opportunities to the strongest companies, and then a little bit of further research can help one determine in which companies to invest.

This series of posts looks at each of my personal holdings, putting them through a full ModernGraham valuation and adding a level of further research to provide rationale as to why I selected the company for my portfolio.  Here’s a page with more information about my portfolio, including my thoughts and goals on asset allocation and an overview of my current holdings.

The first step in my analysis is to put the company through a full ModernGraham valuation.  For readers who may be new to the site, here on ModernGraham I cover the full S&P 500, putting each company through an individual valuation like this every quarter if it qualifies for either the Defensive Investor or Enterprising Investor, or every year if it does not qualify for either investor type.  Premium members have access to every valuation on the site, for only $4.99/month.

ModernGraham Valuation

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Apple Inc. (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

Downloadable PDF version of this valuation:

ModernGraham Valuation of AAPL

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $6.96
MG Growth Estimate 15.00%
MG Value $268.10
Opinion Undervalued
MG Value based on 3% Growth $100.97
MG Value based on 0% Growth $59.19
Market Implied Growth Rate 3.60%
Current Price $109.27
% of Intrinsic Value 40.76%

Apple Inc. does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and the high PB ratio.  The Enterprising Investor is concerned about the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.29 in 2011 to an estimated $6.96 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.6% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Apple Inc. (AAPL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AAPL Charts - August 2015

Net Current Asset Value (NCAV) -$13.25
Graham Number $66.43
PEmg 15.69
Current Ratio 1.09
PB Ratio 5.02
Dividend Yield 1.77%
Number of Consecutive Years of Dividend Growth 4

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $70,953,000,000
Total Current Liabilities $65,285,000,000
Long-Term Debt $47,419,000,000
Total Assets $273,151,000,000
Intangible Assets $8,823,000,000
Total Liabilities $147,474,000,000
Shares Outstanding (Diluted Average) 5,773,099,000

Earnings Per Share History

Next Fiscal Year Estimate $9.01
Sep14 $6.45
Sep13 $5.68
Sep12 $6.31
Sep11 $3.95
Sep10 $2.16
Sep09 $1.30
Sep08 $0.77
Sep07 $0.56
Sep06 $0.32
Sep05 $0.22
Sep04 $0.05
Sep03 $0.01
Sep02 $0.01
Sep01 -$0.01
Sep00 $0.16
Sep99 $0.13
Sep98 $0.08
Sep97 -$0.30
Sep96 -$0.24
Sep95 $0.12

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $6.96
Sep14 $5.60
Sep13 $4.74
Sep12 $3.81
Sep11 $2.29
Sep10 $1.32
Sep09 $0.81
Sep08 $0.50
Sep07 $0.33
Sep06 $0.18
Sep05 $0.09
Sep04 $0.03
Sep03 $0.04
Sep02 $0.06
Sep01 $0.06
Sep00 $0.05
Sep99 -$0.02

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 12/20/14
Apple Inc. Quarterly Valuation – December 2014 $AAPL
23 Companies to Research This Week – 9/13/14
Apple Inc. Quarterly Stock Valuation – September 2014 $AAPL
21 Companies in the Spotlight This Week – June 14, 2014

Other ModernGraham posts about related companies

The Best Stocks of the IT Hardware Industry – September 2015
Seagate Technology PLC Analysis – September 2015 Update $STX
Microchip Technology Inc. Analysis – September 2015 Update $MCHP
KLA-Tencor Corporation Analysis – September 2015 Update $KLAC
Avago Technologies Ltd Analysis – Initial Coverage $AVGO
Arrow Electronics Inc. Analysis – Initial Coverage $ARW
TE Connectivity Limited Analysis – August 2015 Update $TEL
Broadcom Corporation Analysis – August 2015 Update $BRCM
SanDisk Corporation Analysis – August 2015 Update $SNDK
Corning Inc. Analysis – August 2015 Update $GLW

Rationale & Outlook

After putting the company through a ModernGraham valuation, the next step is to look at the company to analyze its business.  I like to utilize Warren Buffett’s business tenets, which are very helpful in determining the business’s strengths and weaknesses.  Let’s put Apple Inc. through that analysis:

Is the business simple and understandable?

Apple makes computers and related technological devices.  While the individual products may be extremely complicated to produce, the underlying business model remains one of manufacturing and sale of products.  The company puts a large emphasis on marketing its products in order to maximize the market interest, and that strategy has worked considerably well.

Buffett prefers to have companies with a simple business model because it is key for the investor to be able to know what the company is doing.  There are some caveats to this in that it isn’t necessary for the investor to understand the details of how the product works, but rather the goal that the product achieves.  Here, I do not know how to engineer a smartphone, computer, or tablet, but I do understand the need for such products (and even own quite a few of them myself).  As a result, I am able to understand Apple’s business in a simple manner.

Does the business have a consistent operating history?

Steve Jobs, Steve Wozniak, and Ronald Wayne founded Apple in 1976 as a personal computer manufacturer.  Throughout that time, the company has maintained a consistent operating history as a personal computer manufacturer, and its expansion has been limited to related markets such as music devices, smartphones, and tablets; all of which are essentially just smaller versions of personal computers.

Apple specifically is “committed to bringing the best user experience to its customers through its innovative hardware, software and services.” (as stated in the company’s latest 10-K report).  This strategy plays out in the overall design of its products which are often seen as market-leading in terms of usability.

With regard to dividends, the company has only paid a dividend for about four years, but has increased the dividend payment each of those four years. Dividend growth is a key element in a long-term investing strategy, as it can provide a solid yield on investment over a large period of time.

Does the company have favorable long-term prospects?

Apple would appear to have very favorable long-term prospects.  There is a lot of opportunity for growth remaining as even if one considers the US market for smartphones to be saturated, Apple products are expanding further and further into other nations.  In addition, the company still has plenty of room to grow in the personal computer market, though it must find a way to leverage its popularity in the smart phone arena and turn more of those customers into computer buyers.  For example, I do not use a Macintosh computer, but I must admit to being intrigued by the possibility of having enhanced integration between my devices.  I am not alone in this regard among members of my generation and the company just needs to find a way to tip the scales a little bit more in their favor.

Is management rational?

Apple’s management has a clear strategy that is focused on long-term growth.  As such, that management appears to be very rational in my opinion.  In addition, the company has outlined its Sustainability initiatives in a way that will be attractive to many millennials.  Environmental conservation is a key concept for management to address as the world increasingly turns to awareness of climate change.  In particular, as millennials become decision makers, I predict that more companies will need to put more effort into environmentally friendly programs in order to attract business from leaders from the millennial generation and beyond.

Is management candid with shareholders?

Management candor is a key tenet, and the easiest way for management to be candid in today’s environment is to post informative statements on the company website, including links to earnings calls or transcripts of those calls.  Apple’s investor information page is not the most well organized I have seen, and frankly is a bit disappointing given the company’s ability to create easily navigable content.  In addition, the management has a history of seeming to be less than forthcoming with some data – sales data in particular – and that makes me slightly weary of the management’s condor.  That said, the management has done nothing to detract me from trusting them to continue to perform well.

General Thoughts and Outlook

Clearly, some red flags come up in the fact that Apple does not qualify for either the Defensive Investor or the Enterprising Investor; however, this is a rare situation where I am willing to speculate on the company due to extrinsic factors.  In particular, the company has a large amount of investments in long-term marketable securities held by its foreign subsidiaries.  While a chunk of those assets would have to be subject to various US taxes if they are brought back to the US, there seems to be more than enough to cover capital needs and bring the company’s financial position to a point where I am willing to speculate about the value.

As for the value, the ModernGraham valuation model returns a growth estimate at the high end limit of 15% annually for the next 7-10 years, generating a substantially high level of the value when compared to the current market price.  I’m not entirely convinced the company will achieve that growth rate, but I do believe it will sustain a growth rate significantly higher than the market’s implied estimate of only 3.6% annually.  Therefore, I do believe the company to be undervalued at this time and I am excited about the long-term prospects for my investment here.

Disclaimer:

The author held a long position in Apple but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please also take a moment to read our full disclaimer.

Apple Inc. Quarterly Valuation – December 2014 $AAPL

500px-Apple_logo_black.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Apple Inc. (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $111.62
MG Value $215.50
MG Opinion Undervalued
Value Based on 3% Growth $81.16
Value Based on 0% Growth $47.58
Market Implied Growth Rate 5.72%
Net Current Asset Value (NCAV) -$8.67
PEmg 19.94
Current Ratio 1.08
PB Ratio 5.98

Balance Sheet – September 2014

Current Assets $68,531,000,000
Current Liabilities $63,448,000,000
Total Debt $28,987,000,000
Total Assets $231,839,000,000
Intangible Assets $8,758,000,000
Total Liabilities $120,292,000,000
Outstanding Shares 5,972,100,000

Earnings Per Share

2014 $6.45
2013 $5.68
2012 $6.31
2011 $3.95
2010 $2.16
2009 $1.30
2008 $0.97
2007 $0.56
2006 $0.32
2005 $0.22
2004 $0.05

Earnings Per Share – ModernGraham

2014 $5.60
2013 $4.74
2012 $3.83
2011 $2.32
2010 $1.36
2009 $0.86

Dividend History

Conclusion:

Apple Inc. is a great company, but it currently does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and high PB ratio while the Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.36 in 2010 to an estimated $5.60 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 5.72% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of Apple Inc. (AAPL) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Apple Inc. (AAPL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Apple Inc. (AAPL) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Note to regular readers:  Normally any speculative company is placed on an annual review schedule, but for now Apple will remain on a quarterly review schedule.  Apple is one of my personal holdings (for now), and in light of the high level of cash levels the company holds, I prefer to keep a close eye on it to see if it returns to qualifying for the Enterprising Investor.

Apple Inc. Quarterly Stock Valuation – September 2014 $AAPL

500px-Apple_logo_black.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Apple Inc. (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.
AAPL Chart

AAPL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $101.43
MG Value $212.55
MG Opinion Undervalued
Value Based on 3% Growth $80.05
Value Based on 0% Growth $46.93
Market Implied Growth Rate 4.94%
Net Current Asset Value (NCAV) -$5.62
PEmg 18.37
Current Ratio 1.5
PB Ratio 5.02

Balance Sheet – 6/28/2014

Current Assets $67,949,000,000
Current Liabilities $46,205,000,000
Total Debt $29,030,000,000
Total Assets $222,520,000,000
Intangible Assets $6,141,000,000
Total Liabilities $101,580,000,000
Outstanding Shares 5,989,170,000

Earnings Per Share

2014 (estimate) $6.22
2013 $5.68
2012 $6.31
2011 $3.95
2010 $2.16
2009 $1.30
2008 $0.77
2007 $0.56
2006 $0.32
2005 $0.22
2004 $0.05

Earnings Per Share – ModernGraham

2014 (estimate) $5.52
2013 $4.74
2012 $3.81
2011 $2.29
2010 $1.32
2009 $0.81

Dividend History

AAPL Dividend Chart

AAPL Dividend data by YCharts

Conclusion:

Apple Inc. qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, short dividend history, and high PB ratio.  The Enterprising Investor’s only concern is the high level of debt relative to the net current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2010 to an estimated $5.52 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 4.94% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out the previous ModernGraham valuations of Apple Inc. (AAPL) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Apple Inc. (AAPL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Apple Inc. (AAPL) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Apple Inc. Quarterly Valuation – June 2014 $AAPL

500px-Apple_logo_black.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor Near 52 Week Lows.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Apple Inc. (AAPL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

AAPL Chart

AAPL data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $93.86
MG Value $210.75
MG Opinion Undervalued
Value Based on 3% Growth $79.37
Value Based on 0% Growth $46.53
Market Implied Growth Rate 4.32%
Net Current Asset Value (NCAV) -$2.53
PEmg 17.15
Current Ratio 1.63
PB Ratio 4.71

Balance Sheet – 3/29/2014

Current Assets $70,541,000,000
Current Liabilities $43,208,000,000
Total Debt $16,962,000,000
Total Assets $205,989,000,000
Intangible Assets $5,983,000,000
Total Liabilities $85,810,000,000
Outstanding Shares 6,032,220,000

Earnings Per Share

2014 (estimate) $6.08
2013 $5.68
2012 $6.31
2011 $3.95
2010 $2.16
2009 $1.30
2008 $0.77
2007 $0.56
2006 $0.32
2005 $0.22
2004 $0.05

Earnings Per Share – ModernGraham

2014 (estimate) $5.47
2013 $4.74
2012 $3.81
2011 $2.29
2010 $1.32
2009 $0.81

Dividend History

AAPL Dividend Chart

AAPL Dividend data by YCharts

Conclusion:

Apple is a very strong company for Enterprising Investors to explore, but the Defensive Investor has concerns with the low current ratio, lack of a long enough dividend record, and the high PB ratio.  The company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities through a review of ModernGraham’s valuation of Microsoft Corp (MSFT) and ModernGraham’s valuation of Google (GOOG).  From a valuation side of things, the company appears significantly undervalued after growing its EPSmg (normalized earnings) from $1.32 in 2010 to an estimated $5.47 for 2014.  This strong level of demonstrated growth outpaces the market’s implied estimate of 4.32% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Apple Inc. (AAPL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to review the previous ModernGraham Valuations of Apple Inc. (AAPL)!

Disclaimer:  The author held a long position in Apple Inc. (AAPL) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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