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Apple 1
Apple 1
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5/21/2009 Downgrade OVERWEIGHT $125.87 P1 Profitability measures the firm's financial strength in R1 Volatility measures variability of the firm's return on
5/20/2009 Upgrade BUY $127.45 generating an attractive return on capital. capital and stock price.
5/13/2009 Downgrade OVERWEIGHT $124.42 P2 Trend indicates the expansion rate in the firm's R2 Vulnerability measures inability to withstand shocks;
5/6/2009 Upgrade BUY $132.71 economic profit from productivity gains and profitable leveraged, negative cash flow firms are suspect.
5/5/2009 Downgrade OVERWEIGHT $132.07 growth.
5/1/2009 Upgrade BUY $125.83 Valuation Score (V): 69 Lower is better AAPL vs. Market: 78 Higher is better
4/29/2009 Downgrade OVERWEIGHT $123.90 0-19 20-39 40-59 60-79 80-100 0-19 20-39 40-59 60-79 80-100
4/23/2009 Upgrade BUY $121.51
AAPL's elevated high market-to-book ratios and AAPL's outstanding performance (100th percentile
4/21/2009 Downgrade OVERWEIGHT $120.50
high multiples of earnings and cash flow combine vs. Russell 3000 companies), coupled with its
4/17/2009 Upgrade BUY $121.45
for a high, 69th percentile V score. moderate risk (45th percentile), indicates a very
4/15/2009 Downgrade OVERWEIGHT $118.31
V1 Wealth Ratios: 93 Lower is better high intrinsic valuation is warranted (94th
4/4/2009 Upgrade BUY $115.99
percentile), which compared to its actual market
2/5/2009 Downgrade OVERWEIGHT $93.55 0 20 40 60 80 100 valuation (69th percentile at its $402.64 share
1/1/2009 Upgrade BUY $85.35
V2 Wealth Multiples: 64 Lower is better price) makes for a PRVit score of 78th percentile vs.
12/31/2008 Downgrade OVERWEIGHT $86.29
the market.
12/30/2008 Upgrade BUY $86.61 0 20 40 60 80 100
12/24/2008 Downgrade OVERWEIGHT $86.38 V1 Wealth Ratios measures the firm's market-to-book
12/23/2008 Upgrade BUY $85.74 ratios.
12/20/2008 Downgrade OVERWEIGHT $90.00 V2 Wealth Multiples measures the firm's price to
12/18/2008 Upgrade BUY $89.16 earnings and cash flow multiples.
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BU
80 80
Y
score – against its actual valuation score – which
reflects the company’s current trading multiples.
Companies rated “Hold” plot along the diagonal, 60 60
where the firms’ actual valuation multiples align
HO
LD
with their intrinsic values. “Buys” plot in the upper 40 40
right green zone, where PRVit rates the firms as
more valuable than their stock prices indicate, and
“Sells” appear in the lower left red zone, where the 20 20
SE
L
firms’ P-R scores fall short of their V scores. The
L
grid on the left rates the firms against the entire 0 0
market, and the right hand one ranks just against 100 80 60 40 20 0 100 80 60 40 20 0
their sector peers (which is the basis for the official Actual Valuation vs. Russell 3000® (V = 69th Percentile) Actual Valuation vs. Sector (V = 82nd Percentile)
“PRVit” score).
PRVit Measures Overview: A company’s performance is “strong” when its Return on Capital (ROC) exceeds its Cost of Capital (COC), and it is increasing its EVA
-- the profit earned over the full COC, which includes earning a minimum return on equity. Many firms that look profitable by EBITDA or EPS aren’t when judged by
EVA. EVA repairs other distortions: restructuring charges are added back, research is written off over time, leased assets are treated as if owned, and tax gyrations
are smoothed. The result: EVA is a sounder measure of economic profit and more reliable indicator of added market value than reported earnings.
Risk is indicated by stock price and return volatility and reliance on debt financing, offset by “free” cash generation, which betokens liquidity and staying power.
Valuation is measured by Market Value Added (MVA) – the spread between a firm’s overall market value and its balance sheet capital – which is also the amount
of wealth a company has created or destroyed. MVA and EVA should be linked. A firm’s MVA should equal its projected EVA profit, discounted to present value. If a
firm just breaks even on EVA, its market value should nearly match its book capital. Only profitable, EVA expanding firms should trade for MVA premiums. Buy/Sell
opportunities arise when MVAs are mis-aligned with the record for earning and increasing EVA.
Sales ($ in Milliions) Capital ($ in Milliions) MVA($ in Millions) - Left Scale EVA($ in Millions) - Right Scale
150,000 400,000 20,000
0 100,000 5,000
9/06 9/07 9/08 9/09 9/10 9/11 12/06 12/07 12/08 12/09 12/10 12/11
Sales growth has averaged 41% but was 66% in the most recent AAPL earned economic profit and created shareholder wealth.
year. On average, every dollar of Sales has been supported by with MVA currently at $300,332 million the company has created
Capital of $0.51, but capital intensity last year was $0.6 per $1.00 $4.64 of wealth for every dollar invested in the company. (11th
of sales. percentile versus the Russell universe.) AAPL has been a supreme
wealth creator, with MVA following a generally rising EVA trend.
Return on Capital Cost of Capital MVA Spread - Left Scale FGV/MV - Right Scale Stock Volatility Financial Leverage
300% 7,500% 100% 60%
80%
200% 5,000% 40%
60%
40%
100% 2,500% 20%
20%
9/06 9/07 9/08 9/09 9/10 9/11 12/06 12/07 12/08 12/09 12/10 12/11 12/06 12/07 12/08 12/09 12/10 12/11
AAPL's ROC is not meaningful because its capital is negative. That 29% of the company's market value is dependent on future Stock price volatility has subsided and is now at the 52nd
may result from a business that collects cash before it is invested, growth in EVA, which is typical among the Russell 3000 percentile.Financial leverage has eased and is now at the 19th
or a large unusual gain, which is treated as an offset to capital. companies. percentile.
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Registered Trademarks: EVA®, EVA Momentum®, and PRVit® are registered trademarks of EVA Dimensions LLC. Russell 3000 is a registered trademark of The Frank Russell
Company. S&P is a registered trademark of The McGraw-Hill Companies.
EVA Dimensions LLC is the definitive source of financial data bases, valuation modeling and investment research using the proprietary EVA methodology originally developed by
Stern Stewart & Co, the global consulting firm. The principals of EVA Dimensions developed the PRVit stock ranking system used in these reports while they were partners at Stern
Stewart, which sold PRVit and other technology assets to EVA Dimensions in 2006. EVA Advisers LLC, an affiliate of EVA Dimensions, uses the PRVit model to manage
quantitatively-optimized equity portfolios. The company’s Financial Radar Screen software enables users to apply EVA in corporate performance management and securities
analysis.
Disclaimers
This report is for informational purposes only and is not a solicitation to buy or sell any securities from any company mentioned herein. Further, the information contained herein has
been obtained from sources believed to be reliable but its accuracy and completeness is not guaranteed and should not be the sole basis of any investment decision but only to be
used as a factor in the complete investment decision process. The securities mentioned herein involve significant risk including the loss of one’s entire investment and are intended
only for individuals and entities who can tolerate such risk.
The opinions expressed in this report are those of EVA Dimensions LLC. The recommendations reflect our current opinion and are subject to change without notice. The opinions
reflect our assessment of the securities in question without regard to the personal financial situation or needs of any user of these reports. Employees, officers, directors and
affiliates of EVA Dimensions LLC and EVA Advisers LLC or their family members and clients that they advise may buy, sell or hold securities for their own accounts either consistent
with or contrary to the current PRVit score or recommendation. EVA Dimensions LLC and EVA Advisers LLC may provide or seek to provide consulting or investment management
services to the companies and/or the officers, directors and employees of the companies that are the subject of these reports.
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Future Growth Reliance (FGR). Future Growth Value/Market Value. It is the percent of Payback Horizon. The ratio of the firm’s total debt/EBITDAR (which is EBITDA plus rent
the firm’s overall market value that is dependent on, actually, at the risk of, continued plus corrective accounting adjustments). It is the number of years of pre-tax operating
growth in EVA. Stocks with high FGRs will qualify as PRVit “Buys” only if they are cash flow that is required to pay off the firm’s debt, including its operating lease
demonstrating a strong and reliable trend of improving EVA. commitments and pension fund deficit. A high ratio raises questions about a firm’s
creditworthiness and its ability to pounce on fleeting opportunities and to withstand
Future Growth Margin (FGM). Future Growth Value/Sales (for the most recent trailing downturns, and is taken as a sign of “vulnerability.”
four quarters). In principle, a fairly valued firm’s FGM should equal the present value
sum of the EVA Momentum it will accumulate over a growth horizon of 3 -15 years.
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