After dropping below its 200-day moving average today, we wanted to see just what Apple stock is worth. There are tons of opinions out there and many price targets, but its always good to do some of your own research and see what a company has to do to be worth a certain price. We are going to run a breakdown for you of Apple stock, and how we came up with a price target of more than $550 for the next twelve months.
For one, we first needed to project Apple’s operating income for the next five years including this year. We forecasted that the company will be able to produce just above $29B in operating income. We believe by 2015 the company should be able to produce $50B in operating income. This would be a growth rate of 72.5% in operating income over the next five years. From 2006 to 2010 (which included a recession), the company saw growth of 650% in operating income. While that type of growth is not possible, 70% is very moderate in expectations.
To figure out our price target, we also need to compute WACC, taxes, depreciation, growth in working capital, and capital expenditures. We configured the WACC at 8.65%, which we then use the present value factor of over the next five years. We saw working capital growing by $500M to $1.5B in the next five years. Depreciation growing from $1.7B to $2.7B over the next five years. Further, we saw capital expenditures growing to $5B by 2015. Overall, the company has an implied equity value of over 514M, which divided by shares outstanding rings up at $556.
Math not your forte. What we are proving to you though is that this PT is modest and safe. We all have heard the issues…Steve Jobs’ health and meaning to company. The Android taking over the iPhone (the iPhone is one product…Android more than 20). The ability for the company to continue to innovate could be hindered as they seem to have made every size i”whatever” and on and on. Overall, though, you are looking at a company that has become the #1 brand in the world. The company that sits on $11B cash and has no debt. Further, you are looking at a company that is severely undervalued.
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