PRINCIPLES OF FINANCE

PAPER II “APPLE VALUATION”

Apple Inc. (AAPL) stock dropped after the November 1, 2018 release of their 4th quarter results. As of November 15, the sell-off has continued with the stock down as much as 17%. Review the articles provided and do you own research to answer the following questions:

1. Just after hitting a $1 trillion (yes, that is a “t”) value on August 2nd, why did analysists respond negatively to Apple’s November 1, 2018 quarterly report and the stock drop in price? Be specific. Was it an internal or external issue? Can the concern be substantiated from a third-party source such as a supplier? How drastic is the issue in dollars – quantify it? From a financial statement standpoint, what is actually happening?

(25% of grade)

November 1, 2008 report including link to earnings-call:

https://www.apple.com/newsroom/2018/11/apple-reports-fourth-quarter-results/

Also addressed by some analysts noted in #2 articles.

2. Analysts have mixed reviews on the future of Apple and its value. Review different analyst reports and explain why the views are different – some positive, some negative, some neutral. Which analyst is right and which analyst is wrong? How could there be different views?

(50% of grade)

See Charles Schwab and Morningstar reports on Canvas.

Goldman Sachs report:

https://www.ft.com/content/9aafffe6-e761-11e8-8a85-04b8afea6ea3

https://www.marketwatch.com/story/apples-stock-bounces-back-in-face-of-goldmans-lowered-outlook-2018-11-13

video: https://www.cnbc.com/video/2018/11/15/apple-shares-stock-investing.html

Morgan Stanley report: https://www.bloomberg.com/news/articles/2018-11-15/apple-hemorrhaging-halts-as-morgan-stanley-touts-services-unit

More reports: https://www.marketwatch.com/story/apples-stock-flirts-with-bear-market-after-guggenheim-cuts-rating-earnings-outlook-2018-11-14

3. Apple is making an effort to grow its services business. Tim Cook likes to view Apple as having a “basket of grocery” products instead of a single iPhone product (which accounts for over 60% of sales). But in services, Apple has a different mix of competitors such as Google (YouTube), Amazon, and Netflix just to name a few giants. What do analysts say about services and Apple’s ability to compete?

(15% of grade)

See MacWorld article on Canvas from VIU Library

Investor Place Article: https://investorplace.com/2018/05/apple-inc-aapl-stock-services-not-enough-offset-headwind/

Also addressed by some analysts noted in #2 articles.

4. In summary, putting on your analyst hat and everything you have learned so far in class, what do you think about Apple’s future from a financial statement perspective? Provide facts to support your analysis – not just opinions (opinions with no analysis don’t count).

(10% of grade)

Requirements: Must reference two articles not included by instructor. Using APA Guidelines (https://owl.english.purdue.edu/owl/resource/560/01/) the report should be typed, double-spaced on standard-sized paper (8.5″ x 11″) with 1″ margins on all sides, 12 pt. Times New Roman font. Total report should be six (6) to seven (7) pages (not including title page) with no exhibits within the paper. All exhibits, including any financial statements, should be included in the Appendix and referred to in the paper.

All assignments must be submitted through TurnItIn on Canvas. No late or emailed assignments will be accepted. Assignments with over 20% similarity to another student will not be accepted by either student. Assignments with over 20% similarity in general will not be accepted.

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