Key insights
- An analyst's DCF model suggests Apple is overvalued at $300, with a base case fair value of $176. The valuation is highly sensitive to WACC and terminal growth assumptions due to Apple's low capex and large size. The model highlights concerns about iPhone saturation and slowing revenue growth, indicating potential downside risk for Apple's stock.
Been running DCF models this weekend and Apple kept nagging at me. walked through the full two-stage FCFF -wanted to share the setup so anyone can stress test it themselves.
Inputs
revenue growth years 1-5 at 3.6% -analyst consensus, not my number. worth noting Apple's 5yr historical CAGR is 8.7% so the model is already giving up more than half the historical rate before we even start. the 3yr average has collapsed to 1.8% which is the real problem -iPhone saturation in developed markets is visible in the data. fades further to 2.6% in years 6-10.
operating margin held at 32.6% -current TTM run rate, no expansion assumed.
WACC 7.9% -built from beta 0.98 (Apple basically moves 1:1 with the market), current risk-free rate, standard equity risk premium. terminal growth 3.0%, nominal GDP anchor.
CapEx around 3% of revenue. Apple is genuinely asset-light for a hardware company -fab-less model keeps this number low.
what came out
|Scenario|Fair Value|vs $300| |:-|:-|:-| |Bear (1.7% growth, 9.5% WACC)|$106.84|-64%| |Base (3.6% growth, 7.9% WACC)|$176.17|-41%| |Bull (5.0% growth, 7.0% WACC)|$270.05|-10%|
the stock is trading above the bull case.
where the $176 actually comes from
37% of the base case value comes from the 10-year forecast period. the remaining 63% is terminal value -what the business is assumed to be worth after year 10 based on a perpetuity calculation.
that ratio matters because the WACC/terminal growth spread is only 4.9 points. when the spread is that tight, a single point move in either direction swings the output hard. this isn't a model weakness specific to Apple -it's what DCFs look like on any large, low-capex compounder. the output is structurally sensitive to long-run assumptions.
sensitivity -I spent most of my time here
tested WACC from 6% to 10% against terminal growth from 2% to 4%:
|WACC \ Terminal g|2.0%|3.0%|4.0%| |:-|:-|:-|:-| |10.0%|$97|$107|$119| |9.0%|$116|$130|$148| |8.0%|$143|$163|$189| |7.0%|$181|$212|$261| |6.0%|$238|$295|$408|
24 of 25 combinations still show the stock above intrinsic value at $300. the only cell that gets you close is 6% WACC with 4% terminal growth -which requires near-bond discount rates on an equity and perpetual growth above long-run GDP. at the same time.
flipping it around
forget what the model says it's worth -what does $300 require to be true?
holding the cash flow forecast fixed and solving backwards: either long-run growth needs to be 5.4% (2.4 points above the base case, faster than US nominal GDP consensus, for a $4.4 trillion company) or your required return needs to drop to 6.1% (accepting bond-like returns on equity risk). or some blend of both.
those aren't impossible scenarios. but you're paying for them before they show up in a single earnings report.
the business itself
not going to pretend Apple is a bad company. quality score 79/100, profitability 95/100. Piotroski F-Score 8/9. Altman Z-Score 11.2 despite $112B gross debt -net debt is only $76B against $51B+ annual FCF so the headline number is misleading. 100% EPS beat rate over 13 consecutive quarters. $90.7B in buybacks TTM, float shrinking 2.6%/yr. 14-year dividend growth streak at 14% payout ratio -they're barely even trying on dividends.
the quality is not in question.
The valuation math that's hard to get around
34x forward multiple on 5% EPS growth. PEG 1.93. FCF yield 2.2%. earnings yield 2.5% against a risk-free rate sitting above 4% -you're getting paid less to own Apple equity than to own a treasury.
wall street consensus is $324 from 110 analysts, 64% buy or strong buy. the gap between their number and my $176 isn't really a disagreement about the model -it's a disagreement about what deserves to be in the model. services re-rating, Apple Intelligence upgrade cycle, ecosystem lock-in, buyback compounding. none of that shows up cleanly in a DCF. that gap is essentially the moat premium and I don't think they're wrong to weight it. I just can't get it to $300 with inputs that feel honest.
blended fair value -60% DCF, 40% relative peer comps -lands around $208. on a Monte Carlo with 10,000 simulations the stock is at the 92nd percentile of outcomes. 8% of scenarios produce a fair value above today's price.
where I landed
base case $176. bull case $270. blended $208. stock at $300.
not adding here. might revisit in the $240s.
curious if anyone has modeled the AI revenue uplift explicitly -at what growth rate does the base case actually reach $300? I couldn't get there without assumptions that started feeling like cope.
not financial advice. not leaning in to either way.