NASDAQ: AAPL

APPLE INC

Report created Jun 9, 2014 Page 1 OF 6

Apple manufactures PCs, MP3 players, smartphones, tablet computers, software and peripherals for a
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
the Americas, 20%-25% from Europe/MEA, 12%-16% from Asia-Pacific, and 15%-18% from its own retail
stores.

Argus Recommendations
Twelve Month Rating SELL HOLD BUY
Five Year Rating SELL HOLD BUY

Analyst's Notes

Sector Rating

Analysis by Jim Kelleher, CFA, June 9, 2014

ARGUS RATING: BUY
7-for-1 stock split; raising target
Apple has begun trading on a split-adjusted basis following its 7-for-1 stock split.
Stock splits deliver positive messages related to company prospects, while also making trades more
manageable and even attracting new classes of investors.
Our revised EPS estimates for Apple are $6.51 per diluted share for fiscal 2014 and $6.99 for fiscal
2015. Our dividend estimates are now $1.81 for fiscal 2014 and $1.88 for fiscal 2015.
We reiterate our BUY rating on AAPL and are raising our 12-month target price to $110, from $100 on
a split-adjusted basis.
INVESTMENT THESIS
BUY-rated Apple Inc. (NGS: AAPL) has begun trading on a split-adjusted basis
following its 7-for-1 stock split, which occurred after the market close on 6/6/14. From a
mathematical perspective, stock splits are neutral events - but you would have a hard time
finding an investor who really believes that. Stock splits deliver positive messages related to
company prospects, while also making trades more manageable and even attracting new
classes of investors.
Stock splits send the message to investors that the board and management have high
levels of confidence in future business prospects, cash flows, and earnings. In terms of ease
of trading, lower share prices make it easier to execute block trades (100 shares). And
retail investors, who may have felt priced out of AAPL at $650, will now be able to trade
the stock in the accounts of smaller clients.
We also note that Apple could now more easily be accommodated in the world's
premier and most famous price-weighted index, the Dow Jones Industrial Average. Based
on closing prices on 6/6/14, the average stock in the DJIA traded at $88.89. The 7-for-1
split results in AAPL opening around $92, which is the closest to that average any split
divisor would have rendered.

Market Data

Pricing reflects previous trading week's closing price.

200-Day Moving Average

Target Price: $110.00

52 Week High: $93.80

52 Week Low: $55.55

Closed at $92.22 on 6/6

Price
($)

Under Market Over

Weight Weight Weight

Argus assigns a 12-month BUY, HOLD, or SELL rating to each

stock under coverage.
BUY-rated stocks are expected to outperform the market (the
benchmark S&P 500 Index) on a risk-adjusted basis over the
next year.
HOLD-rated stocks are expected to perform in line with the
market.
SELL-rated stocks are expected to underperform the market
on a risk-adjusted basis.
The distribution of ratings across Argus' entire company
universe is: 44% Buy, 50% Hold, 6% Sell.

Key Statistics
Key Statistics pricing data reflects previous trading day's closing
price. Other applicable data are trailing 12-months unless
otherwise specified

Market Overview
Price
Target Price
52 Week Price Range
Shares Outstanding
Dividend

$92.22
$110.00
$55.55 to $93.80
861.38 Million
$1.88

Sector Overview
Sector
Sector Rating
Total % of S&P 500 Market Cap.

Technology
OVER WEIGHT
18.00%

Financial Strength
Financial Strength Rating
Debt/Capital Ratio
Return on Equity
Net Margin
Payout Ratio
Current Ratio
Revenue
After-Tax Income

HIGH
12.1%
228.8%
21.4%
0.28
1.68
$176.04 Billion
$37.71 Billion

Valuation
100

Current FY P/E
Prior FY P/E
Price/Sales
Price/Book
Book Value/Share
Market Capitalization

80
60

Rating

BUY
HOLD
SELL

Forecasted Growth

EPS
($)

Quarterly

1.98

1.76

1.33

1.24

1.97

6.31

Annual

1.44

1.07

1.18

2.07

5.68

1.66
1.35
1.43
6.51 ( Estimate)

1.98

1.65
1.64
1.73
6.99 ( Estimate)

Revenue

46.3

39.2
35.0
156.5

36.0

54.5

43.6
35.3
170.9

37.5

57.6

Q1

Q2
Q3
2012

Q4

Q1

Q2
Q3
2013

Q4

Q1

Annual

FY ends
Sept 30

1 Year EPS Growth Forecast

14.61%
5 Year EPS Growth Forecast
13.00%
1 Year Dividend Growth Forecast
-84.12%

Risk

($ in Bil.)

Quarterly

13.19
14.17
0.45
4.63
$19.92
$79.44 Billion

45.6
41.0
41.9
186.2 ( Estimate)

Q2
Q3
2014

Q4

54.4

Q1

45.8
45.5
49.0
194.8 ( Estimate)

Q2
Q3
2015

Beta
Institutional Ownership

0.87
60.74%

Q4

Please see important information about this report on page 6

2014 Argus Research Company

Argus Analyst Report

NASDAQ: AAPL

APPLE INC

Report created Jun 9, 2014 Page 2 OF 6

Analyst's Notes...Continued
Our revised EPS estimates for Apple are $6.51 per diluted share
for fiscal 2014 and $6.99 for fiscal 2015. The share base rises to
6.16 billion basic shares and 6.19 billion diluted shares. Our
dividend estimates are now $1.81 for fiscal 2014 and $1.88 for
fiscal 2015.
The stock split news from Apple piggybacks on other positive
events, including new software releases from the Worldwide
Developers Conference (WWDC), iWatch rumors, a pending
larger-screen iPhone 6, and the buzz around iTunes related to the
Beats acquisition. We expect a strong fiscal 3Q14 for iPhone and
for Apple overall when results are announced in mid-July. We
reiterate our BUY rating on AAPL and are raising our 12-month
target price to $110, from $100 (on a split-adjusted basis).
RECENT DEVELOPMENTS
AAPL is up 15% year-to-date, ahead of the peer group's 4.7%
gain. Apple rose 5% in 2013, after spending most of the year with
a double-digit decline; the peer group of computing &
information-processing companies in Argus coverage rose 53% in
2013. After being up as much as 70% in 2012 prior to the iPhone
5 launch in September 2012, Apple retraced sharply, limiting its
full-year gain to 31%. AAPL shares recorded a 26% gain in 2011,
compared to a 9% decline for a basket of 11
information-processing stocks in Argus coverage. AAPL rose 53%
in 2010 and surged 146% in 2009.
On 6/6/14 after the market close, Apple split its shares 7-for-1.

The stock commenced trading on 6/9/14 at around $92. From a

mathematical perspective, stock splits are neutral events - but you
would have a hard time finding an investor who really believes
that. Stock splits deliver positive messages related to company
prospects, while also making trades more manageable and even
attracting new classes of investors. By contrast, reverse splits send a
highly negative message about a company's near-term prospects.
Following the technology implosion in 2000-2001, several former
high-flyers such as Ciena, Lucent, and JDS Uniphase executed
reverse stock splits. These companies all sagged following their
reverse splits and traded lower for a long time.
Regular stock splits, on the other hand, send the message to
investors that the board and management have high levels of
confidence in future business prospects, cash flows, and earnings.
Apple can afford to be confident about its outlook. Apple posted a
negative EPS comparison in fiscal 2013, with earnings declining
10% from FY12. For FY14, the consensus is forecasting 11% EPS
growth, driven by 6% top-line growth. For 2015, top-line
expectations are slightly higher at 7%, yet the bottom-line
consensus call implies 8.7% growth. We regard that as too
conservative, given the faster growth in higher-margin businesses
such as software and music services (iTunes, Beats, etc.).
AAPL first surpassed $500 in February 2012 and has traded
around that level most of the time since (the stock traded in the
$500-$450 range across much of 2013). In the institutional
market, investors trade pools of money, not shares; institutional

Growth & Valuation Analysis

GROWTH ANALYSIS
($ in Millions, except per share data)
Revenue
COGS
Gross Profit
SG&A
R&D
Operating Income
Interest Expense
Pretax Income
Income Taxes
Tax Rate (%)
Net Income
Diluted Shares Outstanding
EPS
Dividend
GROWTH RATES (%)
Revenue
Operating Income
Net Income
EPS
Dividend
Sustainable Growth Rate
VALUATION ANALYSIS
Price: High
Price: Low
Price/Sales: High-Low
P/E: High-Low
Price/Cash Flow: High-Low

Financial & Risk Analysis

2009
42,905
25,683
17,222
4,149
1,333
11,740
-407
12,066
3,831
32
8,235
907
9.08

2010
65,225
39,541
25,684
5,517
1,782
18,385
-311
18,540
4,527
24
14,013
925
15.15

2011
108,249
64,431
43,818
7,599
2,429
33,790
-519
34,205
8,283
24
25,922
937
27.68

2012
156,508
87,846
68,662
10,040
3,381
55,241
-1,088
55,763
14,030
25
41,733
945
44.15
2.65

2013
170,910
106,606
64,304
10,830
4,475
48,999
-1,480
50,155
13,118
26
37,037
932
39.75
11.40

14.4
41.0
34.6
33.9

31.9

52.0
56.6
70.2
66.9

36.8

66.0
83.8
85.0
82.6

45.6

44.6
63.5
61.0
59.5

33.8

9.2
-11.3
-11.3
-9.9
330.2
20.4

$30.56
$11.17
0.6 - 0.2
3.4 - 1.2
2.3 - 0.8

$46.67
$27.18
0.7 - 0.4
3.1 - 1.8
1.9 - 1.1

$60.96
$44.36
0.5 - 0.4
2.2 - 1.6
1.3 - 0.9

$100.72
$58.43
0.6 - 0.4
2.3 - 1.3
1.7 - 1.0

$82.16
$55.01
0.4 - 0.3
2.1 - 1.4
1.4 - 1.0

FINANCIAL STRENGTH
2011
2012
2013
Cash ($ in Millions)
9,815 10,746 14,259
Working Capital ($ in Millions) 17,018 19,111 29,628
Current Ratio
1.61
1.50
1.68
LT Debt/Equity Ratio (%)

13.7
Total Debt/Equity Ratio (%)

13.7
RATIOS (%)
Gross Profit Margin
Operating Margin
Net Margin
Return On Assets
Return On Equity
RISK ANALYSIS
Cash Cycle (days)
Cash Flow/Cap Ex
Oper. Income/Int. Exp. (ratio)
Payout Ratio

40.5
31.2
23.9
27.1
41.7

43.9
35.3
26.7
28.5
42.8

37.6
28.7
21.7
19.3
30.6

-52.0

-52.1

-44.5

369.8

The data contained on this page of this report has been

provided by Morningstar, Inc. ( 2014 Morningstar, Inc.
All Rights Reserved). This data (1) is proprietary to
Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or
losses arising from any use of this information. Past
performance is no guarantee of future results. This data
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.

Please see important information about this report on page 6

2014 Argus Research Company

Argus Analyst Report

NASDAQ: AAPL

APPLE INC

Report created Jun 9, 2014 Page 3 OF 6

Analyst's Notes...Continued
investors are mainly indifferent to share prices. Nonetheless, lower
share prices may make it easier to execute block trades (100
shares).
Registered investment advisors (RIAs) managing accounts for
individual investors may also find it easier to trade client holdings,
particularly for lower-wealth clients. Retail investors may have felt
priced out of AAPL once the stock climbed into the low-hundreds
range. We believe the RIA and retail investor channel could now
become more active in the AAPL stock. That could contribute to
upward momentum on good news, but also increase downside
moves when the news is bad.
We also note that Apple could now more easily be
accommodated in the world's premier and most famous
price-weighted index, the Dow Jones Industrial Average. The DJIA
is the world's premier and most famous price-weighted index. In
our view, inclusion in the Dow 30 would confer more prestige than
tangible benefits to AAPL. And it is noteworthy that Apple chose
to split its stock 7-to-1, rather than by any other divisor it might
have selected.
Based on closing prices on 6/6/14, the average stock in the DJIA
traded at $88.89. Splitting AAPL 7-for-1 results in a 6/9/14
opening price around $92, which is the closest it could have been
to that average price. Proximity to average prices matters
significantly for any company hoping to win a place in this most
prestigious price-weighted index.
The stock split news from Apple piggybacks on other positive

events, including new software releases from the Worldwide

Developers Conference (WWDC), iWatch rumors, a pending
larger-screen iPhone 6, and the buzz around iTunes related to the
Beats acquisition. WWDC included the new iOS 8 version of the
software for iPhone and iPad, and a preview of 'Yosemite' software
for Mac, which integrates more tightly with iOS. The biggest news
was around Healthkit and Homekit. These two SDKs (software
developer kits) will enable thousands of software developers to
write apps for Apple's health and fitness initiatives and for its
connected smart home initiatives.
We think iWatch could be particularly tied into Healthkit.
There is a mounting tide of iWatch rumors, which usually means
that the product could be imminent. We would not expect a new
iPhone 6 before September or October, which may open the
summer months to iWatch. In our view, iWatch is a logical form
factor for monitoring health and fitness.
We expect a strong fiscal 3Q14 for iPhone and for Apple overall
when results are announced in mid-July. In our view, the loss of
momentum at Samsung and the fragmentation of Android phones
in the market - more than two-thirds of which do not have the
most updated Android operating system - will drive more and more
premier buyers toward iPhone, even while the Street is awaiting
iPhone 6. We also think Apple will increase the software content in
its results; already fast-growing iTunes should be helped by the
Beats music-streaming service. Increasing software content is
typically beneficial to margins.

Peer & Industry Analysis

Growth
17.5

SNDK

P/E
AAPL vs.
Market
AAPL vs.
Sector
More Value

More Growth

Price/Sales
15

AAPL vs.
Market
AAPL vs.
Sector

AAPL

More Value

12.5

More Growth

Price/Book
AAPL vs.
Market
AAPL vs.
Sector

IBM

10

HPQ
P/E

The graphics in this section are designed to

allow investors to compare AAPL versus its
industry peers, the broader sector, and the
market as a whole, as defined by the Argus
Universe of Coverage.
The scatterplot shows how AAPL stacks
up versus its peers on two key
characteristics: long-term growth and
value. In general, companies in the lower
left-hand corner are more value-oriented,
while those in the upper right-hand corner
are more growth-oriented.
The table builds on the scatterplot by
displaying more financial information.
The bar charts on the right take the
analysis two steps further, by broadening
the comparison groups into the sector
level and the market as a whole. This tool
is designed to help investors understand
how AAPL
might fit into or modify a
diversified portfolio.

Value

10

5-yr Growth Rate(%)

Market Cap
Ticker Company
($ in Millions)
IBM
International Business Machine
188,641
AAPL Apple Inc
79,437
HPQ Hewlett-Packard Co
64,131
SNDK SanDisk Corp
22,623
Peer Average
88,708

5-yr
Growth
Rate (%)
10.0
13.0
9.0
12.0
11.0

Current
FY P/E
10.4
14.2
9.2
16.9
12.7

Net
Margin
(%)
16.0
21.4
4.9
18.1
15.1

More Value

More Growth

More Value

More Growth

PEG

12.5

1-yr EPS
Growth
(%)
8.9
7.4
4.9
9.1
7.6

Argus
Rating
HOLD
BUY
BUY
BUY

AAPL vs.
Market
AAPL vs.
Sector

5 Year Growth
AAPL vs.
Market
AAPL vs.
Sector
More Value

More Growth

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

More Growth

Please see important information about this report on page 6

2014 Argus Research Company

Argus Analyst Report

NASDAQ: AAPL

APPLE INC

Report created Jun 9, 2014 Page 4 OF 6

Analyst's Notes...Continued
We reiterate our BUY rating on AAPL and are raising our
12-month target price to $110, from $100 on a split-adjusted basis.
EARNINGS & GROWTH ANALYSIS
Apple reported fiscal 2Q14 revenue of $45.6 billion, which was
up 4.7% annually and down 21% sequentially from its seasonally
strong holiday quarter. Revenue was above management's guidance
of $42-$44 billion and also topped the $43.7 billion consensus.
Management had guided for gross margin in the 37%-38% range;
actual gross margin was 39.3% for 2Q14, compared to 37.9% in
1Q14 and 37.5% a year earlier. Operating income came to $13.6
billion in 2Q14, down from $17.5 billion in 1Q14 but up from
$12.6 billion a year earlier.
The following discussion reflects pro forma adjustments to
reflect the 7-for-1 stock split that occurred on 6/6/14 after the
market closed.
GAAP earnings totaled $1.66 per diluted share in fiscal 2Q14,
compared to $2.08 in fiscal 1Q14 and $1.44 a year earlier. The
15% annual improvement in EPS was aided by a 7%
year-over-year reduction in shares outstanding. With no significant
adjustments, events or charges in any period, GAAP and
non-GAAP earnings were identical. Apple's stock-option costs, if
excluded, would increase quarterly EPS by a few pennies.
For all of FY13, revenue of $70.9 billion advanced 9% from
$156.5 billion in FY12; diluted EPS of $5.68 declined 10% from
$6.31 in FY12.
For 3Q14 (calendar 2Q14), Apple projects revenue of $36-$38
billion, a gross margin in the 37%-38% range; operating expense
of $4.4-$4.5 billion, and a tax rate of 26.1%. That points to
earnings of $1.30-$1.36 per diluted share for 3Q14, representing
year-over-year growth of more than 20%.
Given the strong growth rate for the iPhone even without the
boost from a new product refresh, our EPS estimates for Apple are
3%-4% above consensus. Our FY14 estimate is $6.51 per diluted
share, and our FY15 forecast is $6.99. Our long-term EPS growth
rate forecast for AAPL is 13%.
FINANCIAL STRENGTH & DIVIDEND
Our financial strength rating on Apple is High, the top of our
five-point scale. The $3 billion cost of the Beats acquisition will
likely be recorded late in fiscal 2014 or early in fiscal 2015.
Cash & short- and long-term investments were $150.6 billion at
the end of 2Q14 or $170 per share; both figures were down from
$158.8 billion at the end of 1Q14, or $176 per share. Cash &
short- and long-term investments were $146.7 billion at year-end
2013, equivalent to $157.50 per share. Cash & short- and
long-term investments totaled $121 billion at the end of fiscal
2012, up from $81 billion at the end of fiscal 2011, $65.8 billion
at the end of 2Q11, $51 billion at the end of fiscal 2010, and $33.9
billion at the end of fiscal 2009. Approximately $82 billion of the
$121 billion in cash as of 4Q12 was offshore.
Apple, which carried no debt until FY13, had $16.96 billion in
debt as of 2Q14. The use of debt gives the company operating
flexibility without the need to on-shore cash at onerous tax rates.
Net cash was $141 billion at 1Q14, up from $130 billion at the
end of FY13.
Cash flow from operations was $53.7 billion in FY13. Cash
flow from operations was $50.8 billion for FY12, compared to
$37.5 billion in FY11, $18.6 billion in FY10, and $10.2 billion in
FY09.

Apple split its stock seven-for-one; trading began on a

split-adjusted basis on June 9, 2014.
On 4/23/14, Apple announced an 8% hike in its quarterly
dividend, to $0.47 per common share. Exactly one year earlier, on
4/23/13, it announced a 15% hike in the payout. In 2012, Apple
declared its first quarterly dividend. We forecast dividends of $1.81
in fiscal 2014 and $1.88 in fiscal 2015.
On 4/23/14, Apple raised its share repurchase authorization to
$90 billion from a prior $60 billion. As of the end of 2Q14, Apple
had already utilized $46.5 billion of its prior $60 billion
authorization. In FY12, the board initially authorized a $10 billion
share repurchase program; it increased the authorization by $50
billion in FY13.
MANAGEMENT & RISKS
Industry legend Steve Jobs, who resigned as CEO on 8/24/11,
passed away on 10/5/11. Timothy Cook is CEO; Mr. Cook ran the
company effectively during Mr. Jobs' medical leave. Former Apple
controller and former Xerox CFO Luca Maestri became CFO in
September 2013, succeeding Peter Oppenheimer. Apple has a deep
bench of executive, engineering and marketing talent. We think
that Apple will continue to attract high-quality talent, both from
an engineering perspective as well as in the corporate leadership
ranks.
The as-anticipated appointment of the new CFO had stoked
expectations that Apple would look to return additional value to
shareholders. Apple followed through with its capital-allocation
adjustments on 4/12/14. The focus on shareholder return will likely
remain paramount for Apple's CFO. Despite Apple's growing
largesse, we expect institutional investors to continue to demand
more aggressive dividend growth and a larger share repurchase
plan.
Since Mr. Jobs' passing, Apple has experienced a dearth of
significant new product categories. At the same time, the flow of
refreshes of existing iPhones, Macs, and iPads has continued. We
believe that the company has a huge runway to ramp up market
share for its leading products, including the iPhone, Mac and iPad.
Mr. Jobs' legacy is a culture of innovation that will continue to
transform the technology world.
COMPANY DESCRIPTION
Apple manufactures PCs, MP3 players, smartphones, tablet
computers, software and peripherals for a 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 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, raised
from Market-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

Please see important information about this report on page 6

2014 Argus Research Company

Argus Analyst Report

NASDAQ: AAPL

APPLE INC

Report created Jun 9, 2014 Page 5 OF 6

Analyst's Notes...Continued
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
dominance in the enterprise data center, where virtualization and
cloud enablement are prompting market-share disruption.
Communications infrastructure players stand to gain from the
explosion in network traffic related to the rise of social networking
sites, high-bandwidth video on the network, and mobile data.
In the technology sector overall, key transformative trends
include acceleration in mobile broadband, driven by tablets and
smartphones; social networking and the resultant explosion in
bi-directional data traffic; Analytics, including Big Data and
business intelligence; and Cloud, including multiple variants
(public, private, and hybrid) and enabling technologies such as
Virtualization, Software-Defined (SD) Networking and Data
Center, and Software/Platform/Infrastructure-as-a-service.
VALUATION
AAPL trades at 14.3-times our 2014 EPS forecast and at
13.3-times our 2015 forecast; the five-year (FY09-FY13) trailing
multiple is 11.2. AAPL, which has historically traded in line with
or above the market multiple, now trades at an 11% discount to
the market on a two-year-average forward basis.
AAPL also trades at discounts to the information-processing
peer group. We believe that a significant peer-group premium is
justified given Apple's ability to generate healthy demand for its
products in every kind of economy and to expand globally. Apple
is also on track for double-digit EPS growth in FY14.
Our fundamental valuation model points to a price near $150.
Apple's dividend provides a current yield of about 2.0%.
Appreciation to our split-adjusted 12-month target price of $110
(raised from a split-adjusted $100) implies a risk-adjusted total
return of 18%, exceeding our forecast for the broad market.
On June 9 at midday, BUY-rated AAPL traded at $93.06, up
$0.84.

Please see important information about this report on page 6

2014 Argus Research Company

Argus Analyst Report

NASDAQ: AAPL

METHODOLOGY & DISCLAIMERS

Report created Jun 9, 2014 Page 6 OF 6

About Argus
Argus Research, founded by Economist Harold Dorsey in 1934,
has built a top-down, fundamental system that is used by Argus
analysts. This six-point system includes Industry Analysis, Growth
Analysis, Financial Strength Analysis, Management Assessment,
Risk Analysis and Valuation Analysis.
Utilizing forecasts from Argus Economist, the Industry Analysis
identifies industries expected to perform well over the next
one-to-two years.
The Growth Analysis generates proprietary estimates for
companies under coverage.
In the Financial Strength Analysis, analysts study ratios to
understand profitability, liquidity and capital structure.
During the Management Assessment, analysts meet with and
familiarize themselves with the processes of corporate management
teams.
Quantitative trends and qualitative threats are assessed under
the Risk Analysis.

And finally, Argus Valuation Analysis model integrates a

historical ratio matrix, discounted cash flow modeling, and peer
comparison.
THE ARGUS RESEARCH RATING SYSTEM
Argus uses three ratings for stocks: BUY, HOLD, and SELL.
Stocks are rated relative to a benchmark, the S&P 500.
A BUY-rated stock is expected to outperform the S&P 500 on
a risk-adjusted basis over a 12-month period. To make this
determination, Argus Analysts set target prices, use beta as the
measure of risk, and compare expected risk-adjusted stock
returns to the S&P 500 forecasts set by the Argus Market
Strategist.
A HOLD-rated stock is expected to perform in line with the
S&P 500.
A SELL-rated stock is expected to underperform the S&P 500.

Argus Research Disclaimer

Argus Research is an independent investment research provider and is not a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have
investment banking operations. The Argus trademark, service mark and logo are the intellectual property of Argus Group Inc. The information contained in this research report is
produced and copyrighted by Argus, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report
may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable,
but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of
an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives,
financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for
you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may
have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the
original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any
loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an
investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research
since 1934. Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may
serve as officers or directors of covered companies, or may own more than one percent of a covered companys stock.

Morningstar Disclaimer
2014 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information. Past performance is no guarantee of future results.

2014 Argus Research Company

Argus Analyst Report