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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.