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.
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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
| 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
| 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 |
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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 | 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
Other ModernGraham posts about related companies
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.
