Morningstar Equity Analyst Report | Report as of 28 Jan 2015 | Page 1 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

Morningstar Pillars Analyst Quantitative

Economic Moat Narrow Wide Apple is driving software and services innovation to capture premium
Valuation QQQ Overvalued
Uncertainty High Low
pricing on hardware.
Financial Health AA- Strong Apple's spectacular December-quarter results far
Brian Colello, CPA, 28 January 2015
Source: Morningstar Equity Research
Investment Thesis outpaced both our expectations and Street consensus
Quantitative Valuation We believe Apple's strength lies in its experience and estimates. Apple’s latest wave of iPhones is not only
AAPL
expertise in integrating hardware, software, services, and driving upgrades from current iOS users, but is also
USA a
third-party applications into differentiated devices that allowing it to gain market share against Android, and even
Undervalued Fairly Valued Overvalued
allow Apple to capture a premium on hardware sales. find first-time smartphone buyers worldwide.
Current 5-Yr Avg Sector Country Although Apple has a sterling brand, strong product
Price/Quant Fair Value 1.06 0.93 0.81 0.74 pipeline, and ample opportunity to gain share in its various We're now much more optimistic about Apple’s iPhone
Price/Earnings 16.9 15.4 21.4 20.7 growth in the near-term, especially as China becomes an
end markets, short product life cycles and intense
Forward P/E 12.2 — 14.4 14.7
competition will prevent the firm from resting on its increasingly important part of the story. Our long-term
Price/Cash Flow 11.2 11.3 13.3 12.8
Price/Free Cash Flow 13.4 13.3 19.0 21.9 laurels, or carving out a wide economic moat, in our thesis remains intact. We expect Apple to build out its
Dividend Yield % 1.69 — 1.57 1.97 opinion. ecosystem, and develop switching costs to help retain the
Source: Morningstar vast majority of its iOS user base over time. We will likely
We believe Apple has developed a narrow economic raise our fair value estimate to $120 per share, and we
Bulls Say
moat, thanks to switching costs related to many attributes maintain Apple's narrow economic moat and positive
OSmartphones should continue to grow as a moat trend ratings.
around the iOS platform that may make current iOS users
piece of the total handset pie. This bodes well for
more reluctant to stray outside the Apple ecosystem for
future iPhone sales. December quarterly revenue of $74.6 billion raced past
future purchases. In our view, much of Apple's exponential
OApple's iPhone and iOS operating system have the high end of Apple’s prior forecast of $66.5 billion,
growth in recent years has stemmed not from the firm's
consistently been rated at the head of the pack in making this revenue beat its largest in at least the last 12
economic moat, but from the achievement of building the
terms of customer loyalty, engagement and quarters. All credit goes to the iPhone, whose sales of 74.5
first truly revolutionary smartphone, the iPhone, that
security, which bodes well for the firm's ability to million units surpassed even Apple’s own internal
integrated hardware and software, as well as a robust
retain customers in the long-term. projections, representing 46% growth from the year-ago
apps store and ecosystem that attracted new users to
OFor each iOS device purchased, customers may platform. Apple's first-mover advantage may be quarter. IPhone pricing also remained robust, at $687 per
be less likely to switch to another provider and diminishing, and "easy growth" coming from early unit, thanks to a richer mix toward the higher-priced iPhone
more likely to buy repeat Apple products, which smartphone adopters may be winding down as the 6 Plus and phones sold with greater storage capacity.
we view as a good sign for long-term hardware smartphone market moves up the adoption curve and Similarly, gross margin expanded 190 basis points
and iTunes revenue. competition ramps up. Yet we still foresee iPhone growth, sequentially, to 39.9%. Apple achieved these stellar
coming from both attracting new customers to iOS (mostly results despite currency headwinds from the
Bears Say in emerging markets, although we still see U.S. growth strengthening U.S. dollar. Adjusting for currency impact,
OApple’s recent decisions to maintain a premium as well) and retaining Apple's existing premium iPhone Apple's revenue would have been $3 billion higher.
pricing strategy may help fend off gross margin customers, where we think the company's moat will play
compression but could limit unit sales growth as an increasingly important role. Apple expects March quarterly revenue of $52 billion to
devices may be unaffordable for many emerging $55 billion, slightly ahead of our prior expectations, and
market customers. Ultimately, we think future smartphone and tablet in line with Street estimates. However, this forecast is
understated by about $2.2 billion due to expectations for
OApple has a host of large tech rivals, many of competition will stem from software and services, as
we’re seeing less and less meaningful hardware even stronger currency headwinds. As icing on the cake,
which are willing to sell devices at bare-bones
differentiation (screen size and quality, etc.). We view Apple expects to launch its Watch in April, leading to even
prices in order to earn income elsewhere.
Apple as well positioned to develop and expand enough stronger cash generation through 2015.
OApple’s less-than-stellar launches of Apple
Maps and iOS 8.0.1 were near-misses that services to enhance the user experience, in order to build
frustrated many users for short periods of time, switching costs that will help the firm retain customers Economic Moat
and generate significant repeat purchases will be critical Brian Colello, CPA 28 January 2015
but any other buggy software launches could
diminish Apple’s reputation for building products for future iPhone growth in the years ahead. We believe Apple has a narrow economic moat based on
that “just work.” modest, but not insurmountable, customer switching
Brian Colello, CPA, 28 January 2015
costs. We don't believe these switching costs are critical
factors in attracting new iOS customers, especially in
Analyst Note
emerging markets, but that such switching costs will allow

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 2 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE not only to improve the entire iOS ecosystem and the
Google Inc GOOG USD 351,821 67,911 22.22 27.55 overall user experience, but also to build switching costs
that give users more and more reasons not to depart the
Microsoft Corp MSFT USD 349,973 93,456 28.97 17.21
platform. Furthermore, in hardware, we believe an owner
Hewlett-Packard Co HPQ USD 68,521 111,454 6.45 14.25
of an iOS device (say, an iPad) is less likely to switch from
an iPhone to an Android phone if it means that he or she
Apple to build a loyal iOS user base that may be less likely will be unable to sync or access a portion of their content.
to flee to other operating systems for future device Additional Apple devices, such as the Mac and potentially
purchases in the long term. As the smartphone market Apple Watch or other gadgets tied to iOS via HomeKit,
matures and a greater proportion of purchases come from could raise these switching costs even further. By
previous smartphone owners, we foresee these switching comparison, no other former handset leader (Nokia,
costs as extremely important differentiators in favor of Motorola, BlackBerry) offered secondary devices that
Apple. That said, given the short product life cycles of two partnered with their phones, giving Apple a unique edge.
to four years for most of its devices, we still think Other hardware vendors, such as Samsung, are emulating
competing products will have plenty of chances to lure this model by bundling devices together. However,
iOS customers away from Apple's platform and overcome Samsung doesn’t control the operating system (Android)
these switching costs, especially if Apple were to stumble used to run these products, and the company has had
in any given product refresh cycle. This prevents us from several false starts in trying to build its own operating
assigning the company a wide economic moat. system, Tizen.

Inherently, we believe there are minimal switching costs Looking at other sources of economic moat, Apple holds
associated with smartphones, as all of these devices can intangible assets associated with patents for its hardware
perform most necessary functions--place calls, send texts, and software designs. However, both the value of such
browse the web, and so on. However, we believe Apple assets and the sustainable competitive advantage
has done a much better job at trying to develop switching stemming from these assets remain cloudy. Regarding
costs than its handset predecessors (such as Motorola Apple’s sterling brand equity, we view brands within
and BlackBerry) that failed to lock in customers when they technology differently than, say, consumer luxury goods.
were on top. Apple's speedy initial development of a We doubt that Apple can charge double the price for a
robust third-party application ecosystem attracted early product that has the exact same hardware and software
smartphone buyers and provided a difficult barrier to entry specifications as an unbranded product. However, we
for other smartphone OS platforms. Although Google’s think that Apple benefits from intangible assets, or a
Android was able to develop a similar network and brand, in terms of the (mostly) positive user experiences
applications developers focused on building products for that customers capture from the firm’s integrated
both of these operating systems, Microsoft has been hardware, software and services. This brand equity may
unable to build out a similarly robust developer network encourage customers to go with Apple for their first
thus far, and we think Apple’s early advantage in smartwatch instead of a host of other offerings. Similarly,
third-party apps will help fend off any potential Apple might be the world's most trusted consumer
competitors looking to build the next great mobile technology firm in terms of delivering flawlessly working
ecosystem. products in existing, and even new, product categories.
However, we still think tech brands are relatively fleeting,
In our opinion, Apple's switching costs stem from its iOS as technological inferiority can supersede years of brand
operating system and appear to be increasing, thanks to equity at any given time. As an example, Nokia was long
its iCloud offering. Apple iOS users who purchase movies, considered a top-10 brand, but its failure to stay on the
TV shows, and applications from the iTunes store are technological forefront overtook its brand recognition.
unable to port these media to Android or other portable
devices (music is transferrable). iCloud adds another layer Apple is trying to improve the network effects of its devices
of switching costs by synchronizing media, photos, notes, with functions like iMessage and FaceTime. However,
and other items across all Apple devices. New services BlackBerry's demise proves that even highly popular
like Apple CarPlay and Apple Pay also aid the firm’s efforts smartphone-centric networks like BlackBerry Messenger

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 3 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

can be broken if other smartphone features (or lack devices that mostly offsets any additional premium
thereof) drive customers to flee. Network effects may be smartphone growth. Longer-term, we model low single
forming around Apple’s apps developers, as a more robust digit iPad revenue growth; we anticipate a refresh cycle
apps store is likely helping Apple attract new customers. at some point, but similar to the iPhone, we anticipate that
However, these same developers likely build for Android low-priced tablet competition may limit future unit sales
as well, so we think that developers will flock to the growth, iPad pricing, or both. We model 5% long-term Mac
ecosystem that offers the most attractive return on revenue growth, as Apple continues to gain share in the
investment. Along these lines, Apple Pay may ultimately PC market. We model $6.5 billion in revenue from Apple
develop a network effect between merchants, credit card Watch in fiscal 2015 and assume that revenue reaches
networks, and users, but we would also anticipate that the $15 billion range in the long-run.
some other service (PayPal, Google, Softcard) could come
close to replicating this service and provide customers Based on Apple’s premium pricing strategy and iPhone
with a non-iOS alternative. Finally, Apple may have some increasing as a mix of Apple’s total revenue, we now model
cost advantages associated with its supply chain, such as minimal corporate gross margin compression from Apple’s
squeezing suppliers or making massive purchases of flash 39% reported in fiscal 2015. In turn, operating margins
memory and other key components. However, we believe hover in the mid- to high-20% range. Our fair value
these advantages are predicated on the enormous uncertainty rating for Apple remains high, given short
forecast volume of Apple's products, and we suspect product life cycles and intense competition within Apple’s
these advantages would evaporate if Apple's device key end markets.
production were to shrink.
Risk
Valuation Brian Colello, CPA 28 January 2015
Brian Colello, CPA 28 January 2015 Apple faces several key risks as competitors attack the
We are raising our fair value estimate for Apple to $120 firm from all angles. Smartphone and tablet competition
per share from $100, as we are substantially more is rising, both from upstart Chinese OEMs on the low- and
optimistic about near-term iPhone growth in light of the mid-range, and tech titans like Samsung, Lenovo and
firm’s spectacular iPhone 6 and 6 Plus launch in late 2014. Huawei all have the size and scale to build large
Our fair value estimate implies fiscal 2015 (ending smartphone portfolios to suit customers at every price
September 2015) price/earnings of 15 times (and only 11 point. As a premium phone supplier, Apple also runs the
times after excluding Apple’s cash balance on hand). risk that wireless carriers could reduce or eliminate the
Given Apple’s strong start to fiscal 2015, we project 25% subsidies that have made iPhones more affordable to
revenue growth for the year, up from our prior projection many customers. Finally, some competitors like Xiaomi
of 11%, as iPhone sales, especially in China, have been and Amazon are more than willing to sell hardware at
remarkable. We project iPhone revenue growth of 39% in close to cost in order to drive other revenue streams. If
fiscal 2015 and 9% Mac growth, offset by a 16% decline any of these devices offer a similar user experience to iOS
in iPad revenue as Apple’s tablet sales slow in the face products, Apple may be unable to capture an adequate
of longer replacement cycles and cannibalization from the premium on future hardware sales. All the while, the low
iPhone and Mac. end of the smartphone market (where Apple does not
participate) will likely be the faster growing portion of the
Longer term, Apple should still attract late smartphone smartphone market for years to come.
adopters in developed markets and new customers in
emerging markets (especially China). As more consumers Apple also must continually innovate on the hardware
are previous smartphone owners, rather than first-time front, and the company’s upcoming Watch will need to
buyers, we think Apple has a good chance to retain a match the immense pre-launch hype for the device. Any
sizable portion of its iOS user base today, and perhaps severe slip up could be damaging to Apple’s brand and
gain further share at the high end of the market. We model customer loyalty. Apple must also deliver immaculate
8% iPhone revenue growth in fiscal 2016, but low single software and services in order to generate premiums on
digit growth thereafter, as Apple may face pricing hardware sales, but slip-ups like the early launch of Apple
pressure and a less favorable mix shift toward lower end Maps and a failed iOS 8.0.1 release show the difficulty in

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 4 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

flawlessly staying on the cutting edge. Further, Apple still

relies on a robust app-developer base and strong More recently, Apple launched an iOS 8.0.1 update that
partnerships with third parties, yet these companies will was quickly recalled after it rendered some users' phones
likely focus on the operating system that provides the best useless. Further, several prominent tech analysts and
return on investment and could turn their attention to developers have questioned Apple’s cadence of updating
Android if Apple’s iOS user base were to slip. If Apple iOS and OS X annually without fully fixing the bugs and
were to falter and its exceptional brand be diminished as problems with current software versions. These type of
customers departed iOS in droves, we’re not even sure missteps could potentially leave the door open for any
that Apple’s mighty cash cushion could help the firm buy frustrated customers to try another platform like Android
its way out of any problem. or Windows. At the very least, Apple may find it more
difficult to quickly push its iOS user base onto the latest
Management version of its operating system in future releases, which
Brian Colello, CPA 28 January 2015 we see as a key positive differentiator for Apple over
We view Apple as a good steward of shareholder capital. Android as apps developers don’t need to build and test
Tim Cook became CEO in August 2011 after cofounder, their apps for a wide variety of operating system versions.
longtime CEO, and visionary Steve Jobs stepped down
from the CEO role before passing away in October 2011. On the bright side, while many may have questioned
Cook was considered to be Jobs' right-hand man and Apple’s management team about its decision to initially
served in various operations roles with Apple before price the iPhone 5c at $549, rather than at lower prices
becoming COO in 2005. We believe Jobs' passing was a that more directly addresses emerging market demand,
blow to the firm, as he was a one-of-a-kind leader and we tend to approve of Apple’s decisions to maintain its
creative mind. Arthur Levinson, former chairman and CEO premium pricing position. We also applaud Cook’s decision
of Genentech, is chairman of Apple's board of directors. to initiate dividend and stock buyback programs, as well
as take on debt in order to fund such programs. We
We’re comfortable with Apple’s level of technological recognize that many high-profile investors have called for
innovation over the past couple of years after Jobs’ larger buyback programs, but we think that Apple’s current
passing. Much of this innovation has come from new plan of $90 billion is satisfactory as long as buybacks (and
software and services within iOS like Apple Pay, rather the debt issuances needed to fund these buybacks) are
than brand-new smash-hit products. That said, we still made in a prudent manner. In retrospect, the misstep may
have high hopes that the Apple Watch will deliver have come from not front-loading the buyback program in
incremental earnings growth to Apple, and the firm’s 2013, when both Apple’s share price and interest rates
ability to execute and deliver another premium product were lower than today. Either way, we anticipate that
will likely be viewed by many as a sign that Tim Cook’s Apple will expand upon its buyback program in April 2015,
Apple can, or cannot, deliver successful new products over given the firm’s strong cash generation in recent quarters.
time.
Perhaps more importantly, we think Apple’s frugality in
Although Apple maintains sterling brand recognition and terms of acquisitions is quite admirable. Apple's strategy
has hundreds of millions of loyal followers, the company of focusing on smaller, tuck-in deals and developing
has made a couple of missteps under Cook that, some products in-house, rather than splashy but questionable
skeptics would argue, would have never happened under deals like Microsoft's purchase of Skype or Google's foray
Steve Jobs. Apple executed poorly when it decided to part into hardware by acquiring Motorola Mobility and Nest,
ways with Google Maps in iOS 6 and launch Apple Maps appears to have served investors quite well in recent
with a variety of bugs and errors, leading to a formal years. Even Apple's $3.0 billion acquisition of Beats Music
apology. Also, Apple was relatively slow to recognize and Beats Electronics represented only a tiny portion of
demand for larger-screen iPhones, and although the firm the firm's total cash balance, and we suspect that solid
rectified this issue with its iPhone 6 product lineup, revenue growth and gross margins on headphone
Samsung and other Android-based competitors had a hardware sales may have justified the valuation. Apple
two-year head start and were able to steal away some has also done a good job of attracting top-notch talent to
iOS customers who sought out a larger-screen device. the company, such as former Burberry CEO Angela

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 5 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

Ahrendts to run Apple’s retail and online stores, Paul

Deneve, the former CEO of Yves Saint Laurent, and Kevin
Lynch, former CTO of Adobe. We are comfortable that
these hires have strengthened Apple’s bench in the
unlikely event of Cook departing the company, and each
hire likely has aided in Apple’s efforts to build and deliver
Apple Watch, and perhaps future products as well. All the
while, Apple’s ongoing operations continue to generate
operating margins and cash flow well above its peers in
various hardware industries, which bodes well for future
free cash flow for investors.

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 6 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

Apple reported strong September quarterly results. More

Analyst Notes Archive importantly, it provided a forecast for the December
quarter that was relatively in line with our expectations
Apple Crushes Estimates as iPhone 6 Sales Make and matched the hype that the firm is in the midst of a
a Spectacular Start; Raising FVE to $120 tremendous iPhone launch. We will likely raise our fair
Brian Colello, CPA 28 January 2015 value estimate for Apple, but by no more than 10%, and
Apple's spectacular December-quarter results far view shares as fully valued today. We’ll maintain our
outpaced both our expectations and Street consensus narrow economic moat rating.
estimates. Apple’s latest wave of iPhones is not only
driving upgrades from current iOS users, but is also Apple sold 39 million iPhone units in the September
allowing it to gain market share against Android, and even quarter, up 16% from the year-ago quarter, while average
find first-time smartphone buyers worldwide. selling prices also rose 4% thanks to strong sales of newer
iPhones during the last 11 days of the quarter. Mac was
We're now much more optimistic about Apple’s iPhone the pleasant surprise, with revenue up 18% annually, far
growth in the near-term, especially as China becomes an outpacing the overall PC industry. IPad sales continue to
increasingly important part of the story. Our long-term lag, however, with revenue down 14% from the year-ago
thesis remains intact. We expect Apple to build out its quarter. Apple also bought back another $17 billion of
ecosystem, and develop switching costs to help retain the stock.
vast majority of its iOS user base over time. We will likely
raise our fair value estimate to $120 per share, and we Apple expects revenue in the all-important December
maintain Apple's narrow economic moat and positive quarter to be in the range of $63.5 billion to $66.5 billion,
moat trend ratings. which, at the midpoint, would represent 13% annual
growth. We estimate that the forecast implies that iPhone
December quarterly revenue of $74.6 billion raced past unit sales will be in the low 60-million-unit range, ahead
the high end of Apple’s prior forecast of $66.5 billion, of our prior expectations. However, Apple expects
making this revenue beat its largest in at least the last 12 currency headwinds and higher production costs to keep
quarters. All credit goes to the iPhone, whose sales of gross margin pegged in the 38% range.
74.5 million units surpassed even Apple’s own internal
projections, representing 46% growth from the year-ago Meanwhile, Apple will also plow some of its excess cash
quarter. IPhone pricing also remained robust, at $687 per back into the business, as operating expenses should rise
unit, thanks to a richer mix toward the higher-priced 24% annually. In turn, Apple’s implied EPS guidance met,
iPhone 6 Plus and phones sold with greater storage rather than exceeded, Street expectations. We remain
capacity. Similarly, gross margin expanded 190 basis confident in Apple’s narrow economic moat and positive
points sequentially, to 39.9%. Apple achieved these moat trend ratings, as switching costs continue to increase
stellar results despite currency headwinds from the with every new product and service Apple successfully
strengthening U.S. dollar. Adjusting for currency impact, delivers. Yet, in our view, the December forecast might be
Apple's revenue would have been $3 billion higher. a microcosm of Apple’s long-term financials—premium
products sold to a loyal customer base, partially offset by
Apple expects March quarterly revenue of $52 billion to higher costs to deliver these popular devices.
$55 billion, slightly ahead of our prior expectations, and
in line with Street estimates. However, this forecast is Apple Announces New iPads, While the 5k iMac
understated by about $2.2 billion due to expectations for Retina Screen May Hint at a TV; Maintain $93 FVE
even stronger currency headwinds. As icing on the cake, Brian Colello, CPA 16 October 2014

Apple expects to launch its Watch in April, leading to even We will maintain our $93 fair value estimate and narrow
stronger cash generation through 2015. moat rating for Apple after the firm announced a refresh
to its iPad and iMac product lineups, updates to iOS 8
Apple's Forecast Confirms a Stellar iPhone Launch, (version 8.1), and provided further insight into Apple Pay
Mac Sales Also Shine; Higher FVE Likely and its latest Mac operating system, Yosemite.
Brian Colello, CPA 20 October 2014

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 7 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

We view the product refreshes as solid, incremental

improvements to existing products, with pricing and Opening weekend sales of 10 million iPhones were an
features in line with our prior expectations. Our only real all-time record, compared with 9 million sold a year ago.
surprise was the quality of the retina display within the The jump is even more impressive as it does not include
new $2499 iMac, as its 5k display has more pixels than any sales into China, while an early iPhone launch into the
even the most-advanced Ultra HD TVs. We view this 5k region was part of the mix last year. In retrospect, it is
display as the type of high-quality (and likely high-priced) even possible that last year’s total of 9 million was a bit
screen that Apple will likely include in any potential full inflated as the company pushed a lower cost iPhone 5c on
TV products. Meanwhile, we continue to believe that the market to displace older iPhone 5s. Similar to last year
Apple Pay, iOS 8 and Yosemite will help Apple provide around the iPhone 5s (and especially the gold model),
top-notch software and services that will enable Apple to supply constraints appear to be a relative non-issue on
earn premium pricing on hardware sales and keep early orders. We still expect the iPhone to reach China,
customers loyal to the Apple ecosystem. and for Apple to fulfill any outstanding iPhone demand, in
the coming months.
Our general view on the iPad is that recent unit sales levels
have been underwhelming, as customers appear to be Perhaps the most important comment from Apple is that
holding on to their iPads for longer than expected, while the iPhone broke sell-through records--that is, sales
large-screen phones are likely cannibalizing sales of directly to customers rather than to retailers and
smaller tablets. The introduction of the iPhone 6 Plus will carriers--“by a large margin.” All in all, we have greater
likely cannibalize iPad Mini sales even further, and we confidence today that the iPhone 6 introduction will be
struggle to foresee tremendous iPad unit growth over the Apple’s strongest launch yet, but remain cautious that
next couple of years, even though the new iPad Air 2 and there is greater risk than reward for investors looking to
iPad Mini 3 are even faster and thinner than previous start or add a position in Apple today.
iterations. The firm’s enterprise partnership with IBM
should drive iPad adoption, and an inevitable upgrade Apple's 4 Million iPhone Preorders Is a Nice First
cycle should occur at some point as older-generation iPads Step Toward a Tremendous Product Launch
become obsolete. But we don’t see smartphone Brian Colello, CPA 15 September 2014
customers shifting away from large-screen phones any We will maintain our $93 fair value estimate and narrow
time soon, which should continue to provide headwinds moat rating for Apple, after the firm announced preorders
to premium tablet growth. We don’t doubt Tim Cook’s of 4 million iPhone 6 and iPhone 6 Plus units in its first 24
forecast that tablet unit sales will someday exceed PCs, hours. The new record exceeds 2 million units for the
but we attribute much of this future growth to the low end iPhone 5 in 2012 (note that Apple only took preorders for
of the tablet market. the lower-priced iPhone 5c in 2013). We view the headline
as a good first step toward what we believe will ultimately
Apple Has Another Hit with Opening Weekend be a tremendous iPhone 6 product launch, although we
iPhone Sales of 10 Million Units; Maintain $93 FVE still think that expectations for an even stronger launch
Brian Colello, CPA 22 September 2014 are baked into Apple's stock price today. We would not
We will likely maintain our $93 fair value estimate and view Apple's press release as a sign that iPhone 6 and 6
narrow moat rating for Apple, as the company announced Plus sales will simply double what the company sold two
that it sold 10 million iPhones in its opening weekend this years ago.
year. The figure is quite impressive, but relatively in line
with our expectations, and we remain comfortable with At first glance, we’d attribute the record preorders to a
our iPhone unit sales projections of 60 million units for couple of factors beyond merely strong consumer demand.
the December quarter (versus 51 million in the year-ago The list of countries that took preorders in 2014 is identical
quarter). Nonetheless, we still don’t see an attractive to 2012, except for the inclusion of Puerto Rico this year,
margin of safety in Apple today; while we have even and China remains notably absent in both periods (China
greater confidence that the iPhone 6 will be a big hit for was able to preorder the 5c in 2013). However, Apple's
Apple, we think that recent share prices likely bake in carrier distribution in each country is more robust than it
even loftier expectations. was two years ago, with T-Mobile in the United States

?
© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 8 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

and NTT DoCoMo in Japan as part of the fray. Further, Apple’s Watch lineup looks compelling. The devices have
preorders in the U.S. should receive a shot in the arm from more functionality than what we would have expected,
changes in U.S. wireless plans that allow for early but we fear that the tradeoff might be poor battery life,
upgrades. which was not disclosed, and is our biggest concern for
now. Prices starting at $349 seem reasonable, but we’re
We are not yet alarmed by the company's disclosure that curious about the all-in cost once customers buy additional
many preorders won't be shipped until October, but will wristbands, which may be the real source of Apple’s
keep an eye out for news about further potential supply profitability from the product, as well as pricing on the
constraints. Apple made a similar claim in its 2012 iPhone gold Watch Edition.
5 launch, and we don't think supply shortages will have
a material effect on sales unless such scarcities extend Apple Has Little Room for Error in Upcoming iPhone
into October as well. If supply constraints cause Apple to 6 and iWatch Launch; Maintain $87 FVE
report disappointing revenue for the September quarter, Brian Colello, CPA 04 September 2014
we think that virtually all investors will give Apple a pass, All eyes remain on Apple’s Sept. 9 event, where it is
as long as the firm provides a tremendous forecast for believed the firm will introduce one, if not two, larger
December as it fulfills pent-up demand. screen iPhone 6s, as well as an iWatch wearable device.
We view much of Apple’s run-up (a 32% gain the past six
Innovation Still Vibrant at Apple, But Expectations months, reaching all-time highs) as driven by tremendous
Remain High; Raising Fair Value Estimate to $93 anticipation for these products. In our view, the bar for
Brian Colello, CPA 10 September 2014 Apple has been raised to the point where the firm has
In our view, Apple’s latest product introduction event was virtually no room for error, yet concerns around iCloud
a success. Barring any execution missteps, the launch of security and heightened phablet competition from
two larger-screen iPhones, Apple Pay, and Apple Watch Samsung’s Galaxy Note Edge, which we think led to Sept.
should put to rest any fears that Apple and its 3's 4% sell-off, may pose a couple of risks. We maintain
management team had misplaced their innovation mojo. our $87 fair value estimate and narrow moat for Apple,
News around the iPhone 6 and iPhone 6 Plus was mostly but we will likely reassess our valuation if and when an
in line with our expectations. At this point, we remain iWatch is introduced.
comfortable with our estimates of 60 million iPhone unit
sales in the December quarter, even though we realize In our view, new features around the iPhone 6 (larger
that Apple’s current stock price likely bakes in even loftier screens, sapphire-based displays, mobile payments) are
expectations. We'll likely raise our fair value estimate to well understood. Besides these features, we view the two
$93 per share as we incorporate financial estimates of main catalysts for iPhone 6 growth as coming from Apple’s
Apple Watch into our valuation. Apple's narrow economic partnership with China Mobile, and changes in many U.S.
moat rating is unchanged. wireless plans that allow for early upgrades.

Apple’s iPhone 6 and iPhone 6 Plus may emerge as two Regarding iWatch, we see a chance that the device is
of the best smartphones on the market, as Apple continues priced higher than peers, while failing to offer all of the
to focus on the industry's premium segment. However, functions that have been rumored by many in recent
headwinds to future growth likely stem from low-end and months. We expect tight integration with iOS and a host
mid-range competition from Android. Apple Pay looks of fitness features, but no medical features that would
interesting, and we’re pleased that Apple took great require FDA approval, and relatively little processing
lengths to discuss security associated with this new power in order to preserve battery life. Thus, an iWatch
service. We're much more interested in Apple Pay in terms may face skepticism at first, but as developer support, new
of adding another valuable service that both enhances the features, and price reductions come in over time, we see
user experience, and adds switching costs that promote the iWatch becoming a viable product that contributes
customer stickiness. Apple could potentially earn incremental earnings growth. More important, an iWatch
incremental revenue from Apple Pay in the long run, but should add another layer of switching costs and enable
we don’t see it moving the firm’s revenue needle today. the firm to hold on to its massive iOS user base in the long
run.

?
© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 9 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

?
© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Quantitative Equity Report | Release Date: 28 January 2015 | Reporting Currency: USD | Trading Currency: USD Page
Page 10 1ofof131

Apple Inc AAPL

Last Close Quantitative Fair Value Estimate Market Cap (Bil) Sector Industry Country of Domicile
109.14 103.19 640.1 a Technology Consumer Electronics USA United States

Apple Inc designs, manufactures, & markets mobile Price Versus Quantitative Fair Value
communication & media devices, personal computers, & 2011 2012 2013 2014 2015 2016
portable digital music players, & sells a variety of related Sales/Share
software, services, accessories, networking solutions, & third- Forecast Range
160 Forcasted Price
party digital content.
Dividend
128 Split
Quantitative Scores Scores
All Rel Sector Rel Country Momentum: Positive
Quantitative Moat Wide 100 100 99 96 Standard Deviation: 27.10
Valuation Overvalued 15 13 15 Quantitative Fair Value Estimate
Quantitative Uncertainty Low 100 100 98 64
Financial Health Strong 84 76 84 Total Return 70.51 52-Wk 119.75

32
AAPL 27.18 5-Yr 119.75
USA a

25.6 32.7 7.6 40.0 -1.1 Total Return %

Undervalued Fairly Valued Overvalued
24.0 16.4 -25.5 27.2 -0.1 +/– Market (Morningstar US Index)
— 1.00 2.10 1.67 1.69 Dividend Yield %
11.5 12.1 13.9 17.1 16.9 Price/Earnings
3.0 3.1 3.0 3.7 3.7 Price/Revenue
Valuation Sector Country
Current 5-Yr Avg Median Median Undervalued
Price/Quant Fair Value 1.06 0.93 0.81 0.74 Fairly Valued
Overvalued
Price/Earnings 16.9 15.4 21.4 20.7
Forward P/E 12.2 — 14.4 14.7
Price/Cash Flow 11.2 11.3 13.3 12.8 318,137 Monthly Volume (Thousand Shares)
Price/Free Cash Flow 13.4 13.3 19.0 21.9 Liquidity: High
Dividend Yield % 1.69 — 1.57 1.97
Price/Book 5.7 4.8 2.0 2.4 2010 2011 2012 2013 2014 TTM Financials (Fiscal Year in Mil)
Price/Sales 3.7 3.5 1.4 1.9 65,225 108,249 156,508 170,910 182,795 182,795 Revenue
52.0 66.0 44.6 9.2 7.0 0.0 % Change
Profitability Sector Country 18,385 33,790 55,241 48,999 52,503 52,503 Operating Income
Current 5-Yr Avg Median Median 56.6 83.8 63.5 -11.3 7.2 0.0 % Change
Return on Equity % 33.6 36.8 11.1 12.6 14,013 25,922 41,733 37,037 39,510 39,510 Net Income
Return on Assets % 18.0 23.2 6.1 5.2 18,595 37,529 50,856 53,666 59,713 59,713 Operating Cash Flow
Revenue/Employee (Mil) 1.9 1.8 0.4 0.3 -2,121 -7,452 -9,402 -9,076 -9,813 -9,813 Capital Spending
16,474 30,077 41,454 44,590 49,900 49,900 Free Cash Flow
Quantitative Moat Score 25.3 27.8 26.5 26.1 27.3 27.3 % Sales
100
2.16 3.95 6.31 5.68 6.45 6.45 EPS
66.9 82.7 59.5 -10.0 13.6 0.0 % Change
80
2.55 4.59 6.26 6.84 8.15 8.15 Free Cash Flow/Share
0.00 0.00 0.38 1.63 1.81 1.81 Dividends/Share
60
7.45 11.78 17.98 19.63 19.02 19.02 Book Value/Share
40
6,525 6,573 6,248 5,865 — 5,865 Shares Outstanding (Mil)

Profitability
20
35.3 41.7 42.8 30.6 33.6 33.6 Return on Equity %
22.8 27.1 28.5 19.3 18.0 18.0 Return on Assets %
0
21.5 24.0 26.7 21.7 21.6 21.6 Net Margin %
2008 2009 2010 2011 2012 2013 2014 2015
1.06 1.13 1.07 0.89 0.83 0.83 Asset Turnover
1.6 1.5 1.5 1.7 2.1 2.1 Financial Leverage
Financial Health Sector Country
Current 5-Yr Avg Median Median 39.4 40.5 43.9 37.6 38.6 38.6 Gross Margin %
Distance to Default 0.8 0.8 0.6 0.6 28.2 31.2 35.3 28.7 28.7 28.7 Operating Margin %
Solvency Score 255.7 — 467.2 545.2 — — — 16,960 28,987 28,987 Long-Term Debt
Assets/Equity 2.1 1.7 1.5 1.6 47,791 76,615 118,210 123,549 111,547 111,547 Total Equity
Long-Term Debt/Equity 0.3 — 0.1 0.3 16.9 17.3 13.5 10.7 9.8 9.8 Fixed Asset Turns

Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year %
1-Year 3-Year 5-Year 10-Year Revenue (Bil) Dec Mar Jun Sep Total
Revenue % 7.0 19.1 33.6 36.3 2014 57.6 45.6 37.4 42.1 182.8
Operating Income % 7.2 15.8 34.9 66.2 2013 54.5 43.6 35.3 37.5 170.9
2012 46.3 39.2 35.0 36.0 156.5 27.2
Earnings % 13.6 17.7 37.8 62.4
Dividends % 11.2 — — — 2011 26.7 24.7 28.6 28.3 108.2
17.7
Book Value % -3.1 17.3 30.5 35.2 Earnings Per Share 12.4
11.3
Stock Total Return % 41.1 21.1 30.7 36.1 2014 2.07 1.66 1.28 1.42 6.45
4.2 5.7 4.7 6.0
2013 1.97 1.44 1.07 1.18 5.68 0.9
2012 1.98 1.76 1.33 1.24 6.31
2012 2013 2014
2011 0.92 0.91 1.11 1.01 3.95

©2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information ®

contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution
is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. ß
 Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 11 of 13

Morningstar Equity & Credit Research Methodology

Fundamental Analysis ward the firm’s cost of capital more quickly than compa-
At Morningstar, we believe buying shares of superior nies with moats will. We have identified five sources of
businesses at a discount and allowing them to com- economic moats: intangible assets, switching costs,
pound over time is the surest way to create wealth in network effect, cost advantage, and efficient scale.
the stock market. The long-term fundamentals of busi-
nesses, such as cash flow, competition, economic cy- Fair Value Estimate
cles, and stewardship, are our primary focus. Occa- Our analyst-driven fair value estimate is based primari-
sionally, this approach causes our recommendations to ly on Morningstar’s proprietary three-stage discounted
appear out of step with the market, but willingness to cash flow model. We also use a variety of supplemen-
be contrarian is an important source of outperfor- tary fundamental methods to triangulate a company’s
mance and a benefit of Morningstar’s independence. worth, such as sum-of-the-parts, multiples, and yields,
Our analysts conduct primary research to inform our among others. We’re looking well beyond next quarter
views on each firm’s moat, fair value and uncertainty. to determine the cash-generating ability of a company’s
assets because we believe the market price of a securi-
QQQQQ
QQQQ
QQQ
ty will migrate toward the firm’s intrinsic value over
QQ
Q
time. Economic moats are not only an important sorting
Fundamental Economic Fair Value Uncertainty Star mechanism for quality in our framework, but the desig-
Analysis Moat Rating Estimate Assessment Rating
nation also directly contributes to our estimate of a
company’s intrinsic value through sustained excess re-
Economic Moat turns on invested capital.
The economic moat concept is a cornerstone of Morn-
ingstar’s investment philosophy and is used to distin- Uncertainty Rating
guish high-quality companies with sustainable com- The Morningstar Uncertainty Rating demonstrates our
petitive advantages. An economic moat is a structural assessment of a firm’s cash flow predictability, or valu-
feature that allows a firm to sustain excess returns ation risk. From this rating, we determine appropriate
over a long period of time. Without a moat, a compa- margins of safety: The higher the uncertainty, the wider
ny’s profits are more susceptible to competition. Com- the margin of safety around our fair value estimate be-
panies with narrow moats are likely to achieve normal- fore our recommendations are triggered. Our uncertain-
ized excess returns beyond 10 years while wide-moat ty ratings are low, medium, high, very high, and ex-
companies are likely to sustain excess returns beyond treme. With each uncertainty rating is a corresponding
20 years. The longer a firm generates economic profits, set of price/fair value ratios that drive our recommen-
the higher its intrinsic value. We believe lower-quality dations: Lower price/fair value ratios (<1.0) lead to pos-
no-moat companies will see their returns gravitate to- itive recommendations, while higher price/fair value

Economic Moat

C O M PE T I T I V E F O R C E S

WIDE NARROW NONE COMPANY PROFITABILITY

Moat Sources: Intangible Switching Network Cost Efficient

Assets Costs Effect Advantage Scale

?
© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
 Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 12 of 13

Morningstar Equity & Credit Research Methodology

ratios (>1.0) lead to negative recommendations. In very Quantitative Economic Moat: The quantitative moat
rare cases, the fair value estimate for a firm is so un- rating is analogous to Morningstar’s analyst-driven
predictable that a margin of safety cannot be properly economic moat rating in that both are meant to de-
estimated. For these firms, we use a rating of extreme. scribe the strength of a firm’s competitive position.
Very high and extreme uncertainty companies tend to
have higher risk and volatility. Financial Health: Financial health is based on Morning-
star’s proprietary Distance to Default calculation.
Credit Rating
The Morningstar Corporate Credit Rating measures the Understanding Differences Between Analyst
ability of a firm to satisfy its debt and debtlike obliga- and Quantitative Valuations
tions. The higher the rating, the less likely we think the If our analyst-driven ratings did not sometimes differ
company is to default on these obligations. from our quantitative ratings, there would be little val-
ue in producing both. Differences occur because our
Quantitatively Driven Valuations quantitative ratings are essentially a highly sophisti-
To complement our analysts’ work, we produce Quanti- cated analysis of the analyst-driven ratings of compa-
tative Ratings for a much larger universe of companies. rable companies. If a company is unique and has few
These ratings are generated by statistical models that comparable companies, the quantitative model will
are meant to divine the relationships between Morn- have more trouble assigning correct ratings, while an
ingstar’s analyst-driven ratings and key financial data analyst will have an easier time recognizing the true
points. Consequently, our quantitative ratings are di- characteristics of the company. On the other hand, the
rectly analogous to our analyst-driven ratings. quantitative models incorporate new data efficiently
and consistently. Empirically, we find quantitative rat-
Quantitative Fair Value Estimate (QFVE): The QFVE is ings and analyst-driven ratings to be equally powerful
analogous to Morningstar’s fair value estimate for predictors of future performance. When the analyst-
stocks. It represents the per-share value of the equity driven rating and the quantitative rating agree, we find
of a company. The QFVE is displayed in the same cur- the ratings to be much more predictive than when they
rency as the company’s last close price. differ. In this way, they provide an excellent second
opinion for each other. When the ratings differ, it may
Valuation: The valuation is based on the ratio of a compa- be wise to follow the analyst’s rating for a truly unique
ny’s quantitative fair value estimate to its last close price. company with its own special situation, and follow the
quantitative rating when a company has several rea-
Quantitative Uncertainty: This rating describes our lev- sonable comparable companies and relevant informa-
el of uncertainty about the accuracy of our quantitative tion is flowing at a rapid pace.
fair value estimate. In this way it is analogous to Morn-
ingstar’s fair value uncertainty ratings.

Uncertainty Rating
Price/Fair Value
2.00
Q
1.75
175%
1.50 155%
QQ
135%
1.25
125% 125%
115%
1.00 105% 110%
95% QQQ
90%
0.75 85%
80% 80%
70%
0.50 60% QQQQ
50%
0.25 QQQQQ

Low Medium High Very High

Uncertainty Rating

?
© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 13 of 13

Apple Inc AAPL (XNAS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Dividend Yield % Market Cap (Bil) Industry Stewardship

QQQ 116.73 USD 120.00 USD 1.09 1.69 640.09 Consumer Electronics Standard
28 Jan 2015 28 Jan 2015 28 Jan 2015 28 Jan 2015

© 2015 Morningstar. All Rights Reserved. Unless stated

otherwise, this report was prepared by the person(s)
noted in their capacity as Equity Analysts employed by
Morningstar, Inc., including its global affiliates. It has
not been made available to the issuer prior to
publication.

The Morningstar Rating for stocks identifies stocks

trading at a discount or premium to their intrinsic value.

Five-star stocks sell for the biggest risk-adjusted

discount whereas one-star stocks trade at premiums to
their intrinsic value. Based on a fundamentally focused
methodology and a robust, standardized set of
procedures and core valuation tools used by
Morningstar's Equity Analysts, four key components
drive the Morningstar Rating: 1. Assessment of the website advertising.
firm’s economic moat, 2. Estimate of the stock’s fair -Equity Analysts' compensation is derived from
value, 3. Uncertainty around that fair value estimate Morningstar's overall earning and consists of salary, -Further information on Morningstar's conflict of
and 4. Current market price. Further information on bonus and in some cases restricted stock. interest policies is available from http://global.morni­
Morningstar's methodology is available from ngstar.com/equitydisclosures.
http://global.morningstar.com/equitydisclosures. -Equity Analysts do not influence Morningstar's
investment management group's business arrangements If you wish to obtain further information regarding
This Research Report is current as of the date on the nor allow employees from the investment management previous research reports and recommendations and
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other information becomes available to us. This report direct benefit from the publication of this report.
will be updated if events affecting the report materially Morningstar does not receive commissions for Unless otherwise provided in a separate agreement,
change. providing research and does not charge companies to you may use this report only in the country in which its
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Conflicts of Interest:
-Equity Analysts use publicly available information. The original distributor of this document is Morningstar
-No material interests are held by Morningstar or the Inc. The information contained herein is not
Equity Analyst in the financial products that are the -Morningstar may provide the product issuer or its represented or warranted to be accurate, correct,
subject of the research reports or the product. related entities with services or products for a fee and complete, or timely. This report is for information
on an arms length basis including software products purposes only, and should not be considered a
-Equity Analysts are required to comply with the CFA and licences, research and consulting services, data solicitation to buy or sell any Redistribution is
Institute's Code of Ethics and Standards of Professional services, licences to republish our ratings and research prohibited without written permission.
Conduct. in their promotional material, event sponsorship and

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© 2015 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.