Apple Inc. (AAPL) Quarterly Valuation

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.  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. 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 – FAIL
  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 $530.92
MG Value $1,457.64
MG Opinion Undervalued
Value Based on 3% Growth $548.98
Value Based on 0% Growth $321.82
Market Implied Growth Rate 2.76%
Net Current Asset Value (NCAV) -$16.98
PEmg 14.02
Current Ratio 1.49
PB Ratio 3.65

Balance Sheet – 12/28/2013

Current Assets $80,347,000,000
Current Liabilities $53,769,000,000
Total Debt $16,961,000,000
Total Assets $225,184,000,000
Intangible Assets $6,127,000,000
Total Liabilities $95,500,000,000
Outstanding Shares 892,550,000

Earnings Per Share

2014 (estimate) $41.19
2013 $39.75
2012 $44.15
2011 $27.68
2010 $15.15
2009 $9.08
2008 $5.36
2007 $3.93
2006 $2.27
2005 $1.56
2004 $0.36

Earnings Per Share – ModernGraham 

2014 (estimate) $37.86
2013 $33.18
2012 $26.70
2011 $16.06
2010 $9.22
2009 $5.65

Dividend History

AAPL Dividend Chart

AAPL Dividend data by YCharts


Apple Inc. is an excellent company for Enterprising Investors, having failed only the investor type’s current ratio requirement.  The company does not qualify for the Defensive Investor due to its low current ratio, lack of a long enough dividend record, and high PB ratio.  As a result, Enterprising Investors should feel very comfortable proceeding with further research into the company and its competitors, including a review of ModernGraham’s valuation of Microsoft (MSFT) and ModernGraham’s valuation of Google (GOOG).  As for a valuation, the company appears to be significantly undervalued.  Apple has grown its EPSmg (normalized earnings) from $9.22 to an estimated $37.86 for 2014, a growth rate that far outpaces the market’s implied estimate of only 2.76% earnings growth.  The ModernGraham valuation model has accordingly returned an estimate of intrinsic value that is much higher than 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.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

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

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

2 thoughts on “Apple Inc. (AAPL) Quarterly Valuation

  1. Ted Darling says:

    You note a current ratio of 1.49, which is technically correct as of the 12.31.13 reporting period.
    However, you neglect to count the $118B that Apple also has in long-term marketable securities, and conclude that Apple fails the financial condition test. All in Apple has almost $159B in cash and marketable securities, given it an incredibly strong financial condition.

    1. Ted, thanks for the comment. While it is true that Apple has $118B listed on the balance sheet in “Investments and Advances,” the company does not consider those to be liquid enough to count as current assets. As a result, the Intelligent Investor should not count those as current assets when assessing the company’s current ratio to determine whether it fits the requirements of the Defensive Investor or Enterprising Investor.

      It should be noted that even if Apple passes the financial condition requirements, the ultimate result will not change. The company would still be unsuitable for Defensive Investors and it already is considered suitable for Enterprising Investors.

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