Stock Analysis on Net

Apple Inc. (NASDAQ:AAPL)

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Apple Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.61%
0 DPS01 0.90
1 DPS1 1.53 = 0.90 × (1 + 69.66%) 1.33
2 DPS2 2.38 = 1.53 × (1 + 55.73%) 1.81
3 DPS3 3.37 = 2.38 × (1 + 41.79%) 2.24
4 DPS4 4.31 = 3.37 × (1 + 27.85%) 2.50
5 DPS5 4.91 = 4.31 × (1 + 13.91%) 2.48
5 Terminal value (TV5) 808.11 = 4.91 × (1 + 13.91%) ÷ (14.61%13.91%) 408.71
Intrinsic value of Apple Inc. common stock (per share) $419.07
Current share price $148.11

Based on: 10-K (reporting date: 2022-09-24).

1 DPS0 = Sum of the last year dividends per share of Apple Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 3.94%
Expected rate of return on market portfolio2 E(RM) 12.52%
Systematic risk of Apple Inc. common stock βAAPL 1.24
 
Required rate of return on Apple Inc. common stock3 rAAPL 14.61%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rAAPL = RF + βAAPL [E(RM) – RF]
= 3.94% + 1.24 [12.52%3.94%]
= 14.61%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Apple Inc., PRAT model

Microsoft Excel
Average Sep 24, 2022 Sep 25, 2021 Sep 26, 2020 Sep 28, 2019 Sep 29, 2018 Sep 30, 2017
Selected Financial Data (US$ in millions)
Dividends and dividend equivalents declared 14,793 14,431 14,087 14,129 13,735 12,803
Net income 99,803 94,680 57,411 55,256 59,531 48,351
Net sales 394,328 365,817 274,515 260,174 265,595 229,234
Total assets 352,755 351,002 323,888 338,516 365,725 375,319
Shareholders’ equity 50,672 63,090 65,339 90,488 107,147 134,047
Financial Ratios
Retention rate1 0.85 0.85 0.75 0.74 0.77 0.74
Profit margin2 25.31% 25.88% 20.91% 21.24% 22.41% 21.09%
Asset turnover3 1.12 1.04 0.85 0.77 0.73 0.61
Financial leverage4 6.96 5.56 4.96 3.74 3.41 2.80
Averages
Retention rate 0.78
Profit margin 22.81%
Asset turnover 0.85
Financial leverage 4.57
 
Dividend growth rate (g)5 69.66%

Based on: 10-K (reporting date: 2022-09-24), 10-K (reporting date: 2021-09-25), 10-K (reporting date: 2020-09-26), 10-K (reporting date: 2019-09-28), 10-K (reporting date: 2018-09-29), 10-K (reporting date: 2017-09-30).

2022 Calculations

1 Retention rate = (Net income – Dividends and dividend equivalents declared) ÷ Net income
= (99,80314,793) ÷ 99,803
= 0.85

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 99,803 ÷ 394,328
= 25.31%

3 Asset turnover = Net sales ÷ Total assets
= 394,328 ÷ 352,755
= 1.12

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 352,755 ÷ 50,672
= 6.96

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.78 × 22.81% × 0.85 × 4.57
= 69.66%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($148.11 × 14.61%$0.90) ÷ ($148.11 + $0.90)
= 13.91%

where:
P0 = current price of share of Apple Inc. common stock
D0 = the last year dividends per share of Apple Inc. common stock
r = required rate of return on Apple Inc. common stock


Dividend growth rate (g) forecast

Apple Inc., H-model

Microsoft Excel
Year Value gt
1 g1 69.66%
2 g2 55.73%
3 g3 41.79%
4 g4 27.85%
5 and thereafter g5 13.91%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 69.66% + (13.91%69.66%) × (2 – 1) ÷ (5 – 1)
= 55.73%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 69.66% + (13.91%69.66%) × (3 – 1) ÷ (5 – 1)
= 41.79%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 69.66% + (13.91%69.66%) × (4 – 1) ÷ (5 – 1)
= 27.85%