NASDAQ: AAPL

APPLE INC
Report created Jan 29, 2015 Page 1 OF 6

Apple manufactures PCs, MP3 players, smartphones, tablet computers, software and peripherals for a Argus Recommendations
worldwide customer base. Its products include the Macintosh line of desktop and mobile PCs, the iPod
MP3 line, the iPhone, the iPad, and various consumer products including Apple TV. Apple also owns and
operates iTunes, the world's largest vendor of recorded music. Apple derives 40%-45% of its revenue from Twelve Month Rating SELL HOLD BUY
the Americas, 20%-25% from Europe/MEA, 12%-16% from Asia-Pacific, and 15%-18% from its own retail
stores. Five Year Rating SELL HOLD BUY

Analyst's Notes Sector Rating Under Market Over

Weight Weight Weight

Analysis by Jim Kelleher, CFA, January 28, 2015 Argus assigns a 12-month BUY, HOLD, or SELL rating to each
ARGUS RATING: BUY stock under coverage.
• BUY-rated stocks are expected to outperform the market (the
• Blows out expectations, strong March quarter on tap benchmark S&P 500 Index) on a risk-adjusted basis over the
next year.
• Apple blew out expectations for fiscal 1Q15, as iPhone shipments exploded to 74.5 million units. • HOLD-rated stocks are expected to perform in line with the
• Net income of $18 billion for 1Q15 was the highest ever for any company in any quarter worldwide, market.
and was up $5 billion from the year-earlier holiday quarter. • SELL-rated stocks are expected to underperform the market
on a risk-adjusted basis.
• Apple generated $33 billion in cash from operations in 1Q15 to put atop its already staggering hoard, The distribution of ratings across Argus' entire company
now at $178 billion. universe is: 47% Buy, 47% Hold, 5% Sell.
• Our valuation model for Apple also appears increasingly attractive for the long term. We are
reiterating our BUY rating to a 12-month target price of $135 (raised from $125). Key Statistics
Key Statistics pricing data reflects previous trading day's closing
INVESTMENT THESIS price. Other applicable data are trailing 12-months unless
otherwise specified
BUY-rated Apple Inc. (NGS: AAPL) blew out iPhone expectations in its fiscal 1Q15
(calendar 4Q14), as iPhone shipments exploded to 74.5 million units. With unit sales of Market Overview
74.5 million in 1Q15, iPhone 6 and 6 Plus have proven to be a global phenomenon, Price $115.31
driving double-digit revenue growth in every region. Target Price $135.00
Net income of $18 billion for 1Q15 was the highest ever for any company in any 52 Week Price Range $117.61 to $133.60
quarter worldwide, and was up $5 billion from the year-earlier holiday quarter. iPad unit Shares Outstanding 5.82 Billion
Dividend $1.88
sales and revenues lagged year-over-year, and Mac revenue missed our aggressive forecast.
These businesses continue to operate at high levels, however, and new products such as Sector Overview
Apple Watch (due in April) represent intriguing potential. CEO Tim Cook proclaimed Sector Technology
2015 'the year of Apple Pay.' Sector Rating OVER WEIGHT
Apple generated $33 billion in cash from operations in 1Q15 to put atop its already Total % of S&P 500 Market Cap. 19.00%
staggering hoard, now at $178 billion. We expect Apple to pick up the pace of buybacks Financial Strength
and potentially accelerate its niche buys in the software space. The company could also Financial Strength Rating HIGH
push its current dividend yield of 1.7% to be approximately level with the market (around Debt/Capital Ratio 24.0%
2.2%). Return on Equity 37.7%
Demand for iPhone 6 remains strong on a global basis, and sales into China's 4G LTE Net Margin 22.3%
Payout Ratio 0.22
Market Data Pricing reflects previous trading week's closing price. Current Ratio 1.08
200-Day Moving Average Target Price: $135.00 52 Week High: $133.60 52 Week Low: $117.61 Closed at $128.46 on 2/27 Revenue $199.80 Billion
Price After-Tax Income $44.46 Billion
($)
120
Valuation
Current FY P/E 12.67
100 Prior FY P/E 13.49
80 Price/Sales 3.36
Price/Book 5.45
60
Book Value/Share $21.17
Market Capitalization $671.65 Billion
Rating BUY
HOLD
SELL Forecasted Growth
EPS 1 Year EPS Growth Forecast
($) 32.76%
5 Year EPS Growth Forecast
13.00%
Quarterly 1.97 1.44 1.07 1.18 2.07 1.66 1.28 1.43 3.06 1.95 1.73 1.81 2.90 2.43 1.83 1.95
5.68 6.44 8.55 ( Estimate) 9.10 ( Estimate)
1 Year Dividend Growth Forecast
Annual
3.87%
Revenue
($ in Bil.) Risk
Beta 0.89
Quarterly 54.5 43.6 35.3 37.5 57.6 45.6 37.4 42.1 74.6 54.1 47.5 50.8 75.3 62.1 54.6 58.7 Institutional Ownership 61.27%
Annual 170.9 182.8 227.0 ( Estimate) 250.7 ( Estimate)
FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Sept 30 2013 2014 2015 2016

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 NASDAQ: AAPL

APPLE INC
Report created Jan 29, 2015 Page 2 OF 6

Analyst's Notes...Continued
networks are really just getting started. Apple guided for revenue of For the first quarter of the September 2015 fiscal year, revenue
$52-$55 billion for fiscal 2Q15, which was slightly below the of $74.6 billion was up 30% year-over-year and up 77%
pre-reporting consensus; given the magnitude of the 1Q blow-out, sequentially; 15% above the $65 billion midpoint of the
however, few on the Street are putting much credence in the $63.5-$66.5 billion guidance range; and well above the $67.5
company's current-quarter revenue guidance. billion consensus, which itself was well above the guidance
After a 10% EPS decline in FY13, Apple bounced back with midpoint. Apple earned $3.06 per diluted share in 1Q15, which
13% EPS growth in FY14. We have raised our FY15 and FY16 was up 48% year-over-year and more than double the $1.43
forecasts, and we look for further double-digit earnings growth in earned in sequentially adjacent fiscal 4Q14. Although Apple does
FY15 and FY16. Our valuation model for Apple also appears not provide specific EPS guidance, its line-item guidance for 1Q15
increasingly attractive for the long term. We are reiterating our pointed to EPS in the $2.30-$2.40 range. Knowing Apple's
BUY rating to a 12-month target price of $135 (raised from $125). conservatism, Wall Street analysts had modeled EPS well above this
RECENT DEVELOPMENTS range, at $2.61 - and still missed actual EPS by over $0.40.
Apple has made some changes to its results presentation on both
AAPL is up 7% year-to-date for 2015, beating the 4% a regional basis and line of business basis. Apple no longer breaks
year-to-date decline for the peer group of computing & out retail sales as a 'region,' and prior-quarter regional sales have
information-processing companies in Argus coverage. AAPL rose been disaggregated and reassigned to the nations and regions in
38% in 2014, ahead of the peer group's 16% gain and 11.4% which those sales were recognized. On a line of business basis, the
capital appreciation (13% total return) for the S&P 500. Apple categories of iPhone & Related and Peripherals & Hardware have
rose 5% in 2013, after spending most of the year with a been categorized into Services (including revenue from iTunes, App
double-digit decline; the peer group rose 53% in 2013. After being Store, Mac Apps, iBooks, Apple Pay, licensing & other services)
up as much as 70% in 2012 prior to the iPhone 5 launch in and Other Products (including iPod, Beats, Apple TV, and
September 2012, Apple retraced sharply, limiting its full-year gain Apple-branded and third-party peripherals and accessories).
to 31%. AAPL shares recorded a 26% gain in 2011, compared to a On a regional basis, every market grew on a year-over-year and
9% decline for a basket of 11 information-processing stocks in sequential basis. Greater China revenue grew 70% year-over-year
Argus coverage. AAPL rose 53% in 2010 and surged 146% in to $16.1 billion (22% of total); and Asia-Pacific excluding Japan &
2009. China (7% of revenue) grew 33% year-over-year. Americas

Growth & Valuation Analysis Financial & Risk Analysis

GROWTH ANALYSIS
($ in Millions, except per share data) 2010 2011 2012 2013 2014
FINANCIAL STRENGTH 2012 2013 2014
Revenue 65,225 108,249 156,508 170,910 182,795
Cash ($ in Millions) 10,746 14,259 13,844
COGS 39,541 64,431 87,846 106,606 112,258
Working Capital ($ in Millions) 19,111 29,628 5,083
Gross Profit 25,684 43,818 68,662 64,304 70,537
Current Ratio 1.50 1.68 1.08
SG&A 5,517 7,599 10,040 10,830 11,993
LT Debt/Equity Ratio (%) — 13.7 26.0
R&D 1,782 2,429 3,381 4,475 6,041
Total Debt/Equity Ratio (%) 13.7 31.6
Operating Income 18,385 33,790 55,241 48,999 52,503
Interest Expense -311 -519 -1,088 -1,480 -1,411 RATIOS (%)
Pretax Income 18,540 34,205 55,763 50,155 53,483 Gross Profit Margin 43.9 37.6 38.6
Income Taxes 4,527 8,283 14,030 13,118 13,973 Operating Margin 35.3 28.7 28.7
Tax Rate (%) 24 24 25 26 26 Net Margin 26.7 21.7 21.6
Net Income 14,013 25,922 41,733 37,037 39,510 Return On Assets 28.5 19.3 18.0
Diluted Shares Outstanding 6,473 6,557 6,617 6,522 6,123 Return On Equity 42.8 30.6 33.6
EPS 2.16 3.95 6.31 5.68 6.45
RISK ANALYSIS
Dividend 0.38 1.63 1.81
Cash Cycle (days) -52.1 -44.5 -48.6
GROWTH RATES (%) Cash Flow/Cap Ex — — —
Revenue 52.0 66.0 44.6 9.2 7.0 Oper. Income/Int. Exp. (ratio) — 369.8 140.3
Operating Income 56.6 83.8 63.5 -11.3 7.2 Payout Ratio — — 7.3
Net Income 70.2 85.0 61.0 -11.3 6.7
EPS 66.9 82.6 59.5 -9.9 13.6 The data contained on this page of this report has been
Dividend — — — 330.2 11.2 provided by Morningstar, Inc. (© 2015 Morningstar, Inc.
Sustainable Growth Rate 36.8 45.6 33.8 20.4 26.4 All Rights Reserved). This data (1) is proprietary to
VALUATION ANALYSIS Morningstar and/or its content providers; (2) may not be
Price: High $46.67 $60.96 $100.72 $82.16 $119.75 copied or distributed; and (3) is not warranted to be
Price: Low $27.18 $44.36 $58.43 $55.01 $70.51 accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or
Price/Sales: High-Low 4.6 - 2.7 3.7 - 2.7 4.3 - 2.5 3.1 - 2.1 4.0 - 2.4
losses arising from any use of this information. Past
P/E: High-Low 21.6 - 12.6 15.4 - 11.2 16.0 - 9.3 14.5 - 9.7 18.6 - 10.9
performance is no guarantee of future results. This data
Price/Cash Flow: High-Low 13.4 - 7.8 8.8 - 6.4 11.8 - 6.8 10.0 - 6.7 10.2 - 6.0 is set forth herein for historical reference only and is not
necessarily used in Argus’ analysis of the stock set forth
on this page of this report or any other stock or other
security. All earnings figures are in GAAP.

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 NASDAQ: AAPL

APPLE INC
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Analyst's Notes...Continued
revenue totaled $30.6 billion (41% of total) and grew 23% sequentially.
year-over-year, while European revenue (23% of total) grew 20%. Services (including revenue from iTunes, App Store, Mac Apps,
On a line of business basis, Apple sold 74.5 million iPhones in iBooks, Apple Pay, licensing & other services) posted revenue of
1Q15, representing annual growth of 46% and sequential growth $4.79 billion, up 9% annually and up 4% sequentially. Other
of 90%. iPhone revenue totaled $51.2 billion, up 58% Products (including iPod, Beats, Apple TV, and Apple-branded and
year-over-year and up 116% sequentially. The faster growth in third-party peripherals and accessories) posted revenue of $2.78
revenues in relation to units is consistent with rising selling prices; billion, down 5% year-over-year but up 42% sequentially in the
ASP for 1Q15 totaled $687, up 8% annually and up 14% unit's seasonally strongest quarter.
sequentially. In past quarters, Apple sold many discounted prior Apple generated cash flow from operations of $33 billion in
models; in 1Q15, Apple sold mainly iPhone 6 and 6 Plus, and with 1Q15. After buybacks, dividends and other capital outlays and
higher memory capabilities. spending, total cash increased to $178 billion at 1Q15 from $164.5
iPad unit sales totaled 21.4 million, down 18% year-over-year billion at fiscal 2014 year-end.
and up 74% sequentially; as these growth rates show, iPad has CEO Tim Cook, trying to wrap our heads around these
replaced iPod as Apple's most seasonal product. iPad ASP of $419 incredible statistics, noted that Apple sold the equivalent of 34,000
declined 5% year-over-year and was down 2% sequentially, as iPhones for every hour of the calendar fourth quarter. iPhone is
consumers flocked to lower-end products including iPad Mini. now available in 130 nations. Results would have been stronger,
Given growing iPad use in enterprise accounts and growing the CEO noted, if not for currency-repatriation penalties.
demand for iPad Air, we expect ASP to climb in subsequent Apple is making progress on new initiatives to strengthen its
quarters. iPad revenue of $8.99 billion in 1Q15 was down 22% ecosystem. Apple invented a new programming language, Swift, as
annually and up 69% sequentially. part of Xcode tools for use by apps designers and others; Swift has
Mac did not generate much sequential unit growth; but, based been downloaded 11 million times since launch in September. This
on strong acceptance for new products, Mac ASPs accelerated should drive already robust development of iOS apps.
sharply. Mac units were 5.52 million in 1Q15, up a healthy 15% Apple Pay is 'off to a great start,' according to CEO Cook, and
annually and flat sequentially. Mac ASPs were $1,426, which was already makes up $2 out of every $3 spent on purchases using
up 8% annually but up 19% sequentially. Consequently, Mac contact-less payment across the three major U.S. card networks. As
revenue of $6.94 billion for 1Q15 was up 9% annually and up 5% more merchants embrace contact-less payment systems, Apple's

Peer & Industry Analysis

The graphics in this section are designed to
P/E
allow investors to compare AAPL versus its Growth
industry peers, the broader sector, and the AAPL vs.
market as a whole, as defined by the Argus Market
Universe of Coverage. AAPL vs.
14 SNDK Sector
• The scatterplot shows how AAPL stacks More Value More Growth
up versus its peers on two key AAPL
characteristics: long-term growth and Price/Sales
value. In general, companies in the lower AAPL vs.
left-hand corner are more value-oriented, Market
while those in the upper right-hand corner 12 AAPL vs.
are more growth-oriented. Sector
More Value More Growth
• The table builds on the scatterplot by
displaying more financial information. Price/Book
• The bar charts on the right take the AAPL vs.
10
analysis two steps further, by broadening Market
the comparison groups into the sector HPQ AAPL vs.
IBM
level and the market as a whole. This tool Sector
is designed to help investors understand More Value More Growth

Value
P/E

how AAPL might fit into or modify a PEG

10 12.5
diversified portfolio.
5-yr Growth Rate(%) AAPL vs.
Market
5-yr Net 1-yr EPS AAPL vs.
Market Cap Growth Current Margin Growth Argus Sector
More Value More Growth
Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating
AAPL Apple Inc 671,652 13.0 13.5 22.3 6.4 BUY 5 Year Growth
IBM International Business Machine 149,983 10.0 9.3 12.9 15.4 HOLD AAPL vs.
HPQ Hewlett-Packard Co 68,154 9.0 9.4 4.5 4.3 BUY Market
AAPL vs.
SNDK SanDisk Corp 17,222 11.0 14.1 15.2 20.4 BUY Sector
Peer Average 226,753 10.8 11.6 13.7 11.6 More Value More Growth

Debt/Capital
AAPL vs.
Market
AAPL vs.
Sector
More Value More Growth

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 NASDAQ: AAPL

APPLE INC
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Analyst's Notes...Continued
percentage share could increase; but the dollar value of transactions analysts had modeled EPS well above this range at $2.61 - and still
should accelerate meaningfully. missed actual EPS by over $0.40.
The CEO stated that development for Apple Watch is on For all of FY14, revenue of $182.8 billion advanced 7% from
schedule, and the product is expected to begin shipping in April $170.9 billion in FY13; diluted EPS of $6.44 rose 13% from $5.68
2014. The apps, notifications and information summaries on Apple in FY13.
Watch are called 'Glances.' The development community is hard at For fiscal 2Q15, Apple guided for revenue of $52-$55 billion.
work on these products, which are specific to the watch only. The guidance midpoint of $53.5 billion was slightly below the
Apple is also progressing in its partnership with IBM to make pre-reporting consensus of $53.9 billion. At the guidance midpoint,
industry-specific apps for iPad and iPhone that capture the power revenue would be up 17% compared to $45.6 billion in fiscal
of cloud and analytics. This project is on schedule to develop 100 2Q14. Gross margin is forecast in a range of 38.5%-39.5%.
apps during 2015. Operating expenses are forecast at $5.4-$5.5 billion. Other income
For fiscal 2Q15, Apple guided for revenue of $52-$55 billion. will be about $350 million, and the tax rate is around 26.3%.
The guidance midpoint of $53.5 billion was slightly below the The midpoint of revenue guidance assumes a 28% sequential
pre-reporting consensus of $53.9 billion. At the guidance midpoint, decline, which would be steeper than the historical 1Q-to-2Q
revenue would be up 17% compared to $45.6 billion in fiscal decline. CFO Luca Maestri cited worsening currency headwinds
2Q14. Gross margin is forecast at 38.5%-39.5%. Operating that impact the 60% of Apple revenue generated outside the
expenses are forecast at $5.4-$5.5 billion. Other income will be Americas, and the expiration of favorable currency hedges. There
about $350 million, and the tax rate is around 26.3%. was also initial channel fill for the China Mobile launch, which
The midpoint of revenue guidance assumes a 28% sequential won't be repeated.
decline, which would steeper than the historical 1Q-to-2Q decline. While Apple's revenue guidance has lately been so conservative
CFO Luca Maestri cited worsening currency headwinds that impact as to be completely unreliable, we note that guidance for 2Q14 was
the 60% of Apple revenue generated outside the Americas, and the the only reasonably accurate guidance the company furnished for
expiration of favorable currency hedges. There was also initial fiscal 2014. At the same, 2Q14 represented the second quarter for
channel fill for the China Mobile launch, which won't be repeated. iPhone 5S, which had lukewarm reception even in 1Q14. Certainly,
While Apple's revenue guidance has lately been so conservative 2Q14 did not have the tailwind of still-strong demand for iPhone 6
as to be completely unreliable, we note that guidance for 2Q14 was and 6 Plus, which we expect to benefit 2Q15 and the second half of
the only reasonably accurate guidance the company furnished for fiscal 2015.
fiscal 2014. At the same, 2Q14 represented the second quarter for We are raising our FY15 earnings forecast to $8.55 per diluted
iPhone 5S, which had lukewarm reception even in 1Q14. Certainly, share from a prior $7.99. We are moderating our FY16 forecast to
2Q14 did not have the tailwind of still-strong demand for iPhone 6 $9.10 per diluted share from a preliminary $9.17. With no
and 6 Plus, which we expect to benefit 2Q15 and the second half of significant adjustments, events or charges in any period, our GAAP
fiscal 2015. and non-GAAP earnings estimates are identical. Our long-term EPS
Ultimately, Apple will beat expectations for 2Q15; it is just a growth rate forecast for AAPL is 13%.
question of by how much. Demand for iPhone 6 remains strong on FINANCIAL STRENGTH & DIVIDEND
a global basis. Sales into China's 4G LTE networks outside China
Mobile (meaning China Unicom and China Telecom) are really just Our financial strength rating on Apple is High, the top of our
getting started. five-point scale. The $3 billion cost of the Beats acquisition will
After a 10% EPS decline in FY13, Apple bounced back with likely be recorded late in FY14 or early in FY15.
13% EPS growth in FY14. We have raised our FY15 and FY16 Cash was $178 billion at 1Q15. Cash & investments were
forecasts, and we look for further double-digit earnings growth in $155.3 billion at the end of 2014, $146.7 billion at the end of
FY15 and FY16. Our valuation model for Apple also appear s FY13, and $121 billion at the end of FY12. Cash & investments
increasingly attractive for the long term. We are reiterating our were $81 billion at the end of FY11, $65.8 billion at the end of
BUY rating to a 12-month target price of $135. 2Q11, $51 billion at the end of FY10, and $33.9 billion at the end
of FY09.
EARNINGS & GROWTH ANALYSIS Debt was $36.4 billion at 1Q15. Apple increased its debt &
Apple reported fiscal 1Q15 revenue of $74.6 billion, which was commercial paper to $32.3 billion during the second half of FY14,
up 30% year-over-year and up 77% sequentially; 15% above the from $16.96 billion as of mid-year 2014. The use of debt gives the
$65 billion midpoint of the $63.5-$66.5 billion guidance range; company operating flexibility without the need to bring cash from
and well above the $67.5 billion consensus, which itself was well overseas at onerous tax rates. Approximately $137 billion, or 84%
above the guidance midpoint. On seasonally high volumes, gross of cash, was offshore as of the end of 3Q14. Net cash was $133
margin expanded to 39.9% in 1Q15 from 38.0% in 4Q14, while billion at the end of 3Q14, up from $130 billion at the end of
rising from 37.9% a year earlier. Operating income totaled $24.2 FY13.
billion for 1Q15, up 39% year-over-year and up $11.3 billion in Cash flow from operations was $59.7 billion in FY14, versus
4Q14. $53.7 billion in FY13, $50.8 billion in FY12, $37.5 billion in
The following discussion reflects the 7-for-1 stock split that FY11, $18.6 billion in FY10, and $10.2 billion in FY09.
occurred on 6/6/14 after the market closed. GAAP EPS of $3.06 for Apple split its stock 7-for-1 and began trading on a
fiscal 1Q15 was up 48% year-over-year and more than double the split-adjusted basis on June 9, 2014.
$1.42 earned in 4Q14. Although Apple does not provide specific On 4/23/14, Apple announced an 8% hike in its quarterly
EPS guidance, its line-item guidance for 1Q15 pointed to EPS in dividend, to $0.47 per common share. Exactly one year earlier, on
the $2.30-$2.40 range. Knowing Apple's conservatism, Wall Street 4/23/13, it announced a 15% hike in the payout. In 2012, Apple

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Analyst's Notes...Continued
declared its first quarterly dividend. We forecast dividends of $1.88 dominance in the enterprise data center, where virtualization and
in fiscal 2015 and 2016. cloud enablement are prompting market-share disruption.
As of 12/31/15, Apple had used $103 billion of its $130 billion Communications infrastructure players stand to gain from the
share repurchase authorization. Apple plans to update its capital explosion in network traffic related to the rise of social networking
allocation policy in April. At that time, we expect to see increased sites, high-bandwidth video on the network, and mobile data.
buyback authorization, with the potential for an additional In the technology sector overall, key transformative trends
dividend hike. include acceleration in mobile broadband, driven by tablets and
MANAGEMENT & RISKS smartphones; social networking and the resultant explosion in
bi-directional data traffic; Analytics, including Big Data and
Industry legend Steve Jobs, who resigned as CEO on 8/24/11, business intelligence; and Cloud, including multiple variants
passed away on 10/5/11. Timothy Cook is CEO; Mr. Cook ran the (public, private, and hybrid) and enabling technologies such as
company effectively during Mr. Jobs' medical leave. Former Apple Virtualization, Software-Defined (SD) Networking and Data
controller and former Xerox CFO Luca Maestri became CFO in Center, and Software/Platform/Infrastructure-as-a-service.
September 2013, succeeding Peter Oppenheimer. Apple has a deep
bench of executive, engineering and marketing talent. We think VALUATION
that Apple will continue to attract high-quality talent, both from AAPL trades at 13.8-times our 2015 EPS forecast and at
an engineering perspective as well as in the corporate leadership 13.3-times our 2016 forecast; the five-year (FY10-FY14) trailing
ranks. multiple is 13.7. AAPL had in the past traded in line with or above
The as-anticipated appointment of the new CFO had stoked the market multiple, but for the past five years it has traded at an
expectations that Apple would look to return additional value to average discount of 2%. The stock currently trades at a 13%
shareholders. Apple followed through with its capital-allocation discount to the market on a two-year-average forward basis.
adjustments on 4/12/14. The focus on shareholder returns will AAPL also trades at discounts to the technology hardware peer
likely remain paramount for Apple's CFO. Despite Apple's growing group, despite being on track for double-digit growth in FY15 and
largesse, we expect institutional investors to continue to demand FY16. We believe that a significant peer-group premium is justified
more aggressive dividend growth and a larger share repurchase given Apple's ability to generate healthy demand for its products in
plan. every kind of economy and to expand globally.
COMPANY DESCRIPTION Our more forward-looking, two-state discounted free cash flow
model renders a value for AAPL north of $200. Our fundamental
Apple manufactures PCs, MP3 players, smartphones, tablet valuation model points to a price near $200. Apple's dividend
computers, software and peripherals for a worldwide customer provides a current yield of about 1.6%. Appreciation to our
base. Its products include the Macintosh line of desktop and mobile 12-month target price of $135 (raised from $125) implies a
PCs, the iPod MP3 line, the iPhone, the iPad, and various risk-adjusted total return of 16%, exceeding our forecast for the
consumer products including Apple TV. Apple also owns and broad market.
operates iTunes, the world's largest vendor of recorded music. On January 28, BUY-rated AAPL closed at $115.31, up $6.17.
Apple derives 40%-45% of its revenue from the Americas,
20%-25% from Europe/MEA, 12%-16% from Asia-Pacific, and
15%-18% from its own retail stores.
INDUSTRY
Our rating on the Technology sector is Over-Weight. We believe
CIOs and IT managers are becoming more accustomed to
transformative technology, including virtualization & cloud, big
data, analytics, software-defined networking, and
everything-as-a-service. The sorting-out period, in which companies
adapted to increased software content and reduced hardware
intensity, is now being followed by increased investment in these
areas.
Sector valuations remain attractive, while growth prospects
remain highly positive. For the long term, we expect the sector to
increase its weighting within the S&P 500 from the current
19%-20% level to 22%-23%, based on positive company and
sector fundamentals. For individual companies, these include high
cash levels, low debt, and broad international business exposure.
We expect the entire sector to benefit from the transformative
effects generated by new developments in technology.
Positives in the picture for information processing & computing
companies include a second-stage PC and enterprise IT 'refresh'
cycle that is being driven by the Microsoft Windows 8 launch and
Intel's 'Haswell' family of PC (third-generation Core i) and server
processors. Server and Storage providers stand to benefit from the
battle among computing and communications companies for

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About Argus
Argus Research, founded by Economist Harold Dorsey in 1934, And finally, Argus’ Valuation Analysis model integrates a
has built a top-down, fundamental system that is used by Argus historical ratio matrix, discounted cash flow modeling, and peer
analysts. This six-point system includes Industry Analysis, Growth comparison.
Analysis, Financial Strength Analysis, Management Assessment, THE ARGUS RESEARCH RATING SYSTEM
Risk Analysis and Valuation Analysis. Argus uses three ratings for stocks: BUY, HOLD, and SELL.
Utilizing forecasts from Argus’ Economist, the Industry Analysis Stocks are rated relative to a benchmark, the S&P 500.
identifies industries expected to perform well over the next • A BUY-rated stock is expected to outperform the S&P 500 on
one-to-two years. a risk-adjusted basis over a 12-month period. To make this
The Growth Analysis generates proprietary estimates for determination, Argus Analysts set target prices, use beta as the
companies under coverage. measure of risk, and compare expected risk-adjusted stock
In the Financial Strength Analysis, analysts study ratios to returns to the S&P 500 forecasts set by the Argus Market
understand profitability, liquidity and capital structure. Strategist.
During the Management Assessment, analysts meet with and • A HOLD-rated stock is expected to perform in line with the
familiarize themselves with the processes of corporate management S&P 500.
teams. • A SELL-rated stock is expected to underperform the S&P 500.
Quantitative trends and qualitative threats are assessed under
the Risk Analysis.

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