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Apple Inc. (AAPL)

Apple Inc. (AAPL). Covering Analyst: Cameron Schwartz cschwar3@uoregon.edu. Company Overview. Incorporated in 1977 to sell personal computer kits by Steve Jobs and Steve Wozniak Jobs leaves company in 1985 Jobs returns in 1996, becomes CEO in 1997

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Apple Inc. (AAPL)

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  1. Apple Inc. (AAPL) Covering Analyst: Cameron Schwartz cschwar3@uoregon.edu

  2. Company Overview • Incorporated in 1977 to sell personal computer kits by Steve Jobs and Steve Wozniak • Jobs leaves company in 1985 • Jobs returns in 1996, becomes CEO in 1997 • iPod launch in 2001 sets path for series of revolutionary product launches • Largest publicly traded corporation by market capitalization: $554.4 Billion • More than 4% of S&P 500 MarketCap since February

  3. Apple’s Products

  4. Apple Software • Desktop – OS X Mountain Lion • Mobile – iOS 6 • iCloud `

  5. Strategic Positioning • Supply Chains Operations • Research and Development • Sales and Marketing

  6. Business Growth Strategies • Innovation • Retail Stores • Educational Institutions • Asia-Pacific

  7. Industry • PC Market Growth Slowing – (5.1%) until 2017 • Tablet Market Growing • Smartphone Market Growing • Market Research projects 16% CAGR

  8. Competitors

  9. Tall Firs Portfolio • 8/3/12 – Purchased 75 shares at $616.80 • 9/28/12 – Sold 25 shares at $679.58 • Transaction realized gains - $1,569.50 • Current cost basis - $30,840.17 • Current Unrealized Losses - $1,372

  10. Svigals Portfolio • 2/3/2011 – Purchased 9 shares at $459.85 • 4/9/2012 – Sold 3 shares at $627.57 • Transaction realized gains - $503.16 • Current cost basis - $2,759.10 • Current unrealized gains - $777.06

  11. Revenue Model • Percentage of Revenue method • Product Segment • Slowing year-over-year growth • Strong growth from iPhone & iPad • Slow/declining growth from iPod, Desktops, Portables • Unable to predict new products • Apple TV? • Geographic Segment • Americas consistent • Asia-Pacific growing into 2nd largest geographic segment • Europe continues to slow

  12. Working Capital Model • Projected by Percentage of Revenue

  13. DCF Assumptions • COGS: % of Sales, Increases in Q1 and Q4 annually due to projected new product iterations • R&D: % of Sales, Increase as Apple continues to pursue introducing innovative products • SG&A: % of Sales, Historical rates based on number of retail stores opened. • Depreciation: Straight line depreciated • Acquisitions: % of Revenue, conservative rate

  14. DCF cont.

  15. Beta

  16. Growth Rates • 4% intermediate growth rate used. Chosen to create smooth transition to terminal growth rate • 3% terminal growth rate used to project future economic growth into perpetuity

  17. DCF Valuation

  18. Comparable Analysis • Comparable companies screened for: similar product offerings, market capitalization, growth rates, risk, and capital structure • Google (50%), Samsung (30%), Microsoft (20%0, Amazon.com(0%)

  19. Metrics/Multiples • EV/EBITDA weighted at 50% because it captured the entire relative valuation of comparable

  20. Final Valuation

  21. Recommendation • Based on my current valuation I recommend a hold of Apple stocks for both portfolios • Apple’s is viewed as a premium product by all consumers and is positioned well to capitalize on international expansion, especially in China

  22. Questions?

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