Thread by @JacobsRaffy

Assumptions: The following DCF model is predicated on a few assumptions regarding the margins of these businesses and the resulting free cash flow they should produce.

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1) Gross Margins for the segment (iPhone, Mac, and iPad) as a whole rest at 32% throughout the 10 year period of the following DCF model, and operating expenses rest at 13% throughout the same period of time.
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2) Free cash flow to shareholders is assumed to be about 80% of the above operating margin when we account for deductions resulting from an effective tax rate around 20% and interest expense.
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3) For modeling purposes and in light of the recent stagnation in revenues, we assume 1% annualized growth for the entire segment, and 0% thereafter for a 100 year period of time.
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Assumptions:

1) Firstly, the model assumes an average of 20% top and bottom line growth for the next ten years. Considering Wearables, Home and Accessories are growing at a steady 35-40% presently, this may certainly prove to be a conservative estimate.
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2) Gross margins for the segment as a whole rest at 32% throughout the 10 year period of the following DCF model, and operating expenses rest at 13%. $AAPL

This is the same as the iPhone, Mac and iPad segment because Apple combines both of these into one "products" segment, for which they give a total gross margin. $AAPL

This may lead to some distortion in results due to the chance that newer products will have higher operating margins, and therefore generate more FCF.

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3) Free cash flow to shareholders is assumed to be about 80% of this operating margin when we account for deductions resulting from an effective tax rate around 20% and interest expense. $AAPL

Projected share buybacks resulted in a CAGR in FCF to equity per share of 14.28%, instead of the initially assumed 12.5%.

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To sum up the DCF present value, and to identify in the near term how shares will trade, let's add up the values of the individual businesses:
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We arrive at a present value of $308.97. Will it trade to $400 in the near term? Potentially, but as you will see later in the article, much of Apple's future growth has been priced in at $320.

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Capital Return Programs
Share Repurchase Program

Apple continues to aggressively repurchase shares as they execute their leveraged recapitalization, whereby they eventually will become cash neutral, $AAPL

which means the cash on their balance sheet will equal their total long-term debt. $AAPL

In April of 2019, Apple increased their $100B share repurchase program to $175B, of which $116.1B had been used at the end of calendar year 2019.

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This means that Apple will likely execute another $58.9B worth of share repurchases during fiscal year 2020. $AAPL

This is likely because Apple's financial team is probably employing a DCF model nearly identical in nature to mine, which is further demonstrating to them that their shares are fairly valued at worst, and potentially undervalued.

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Dividend

For myself and my team at L.A. Stevens Investments, we view share repurchase programs more often than not as the most ideal method by which to return capital to shareholders. $AAPL

It enables investors to maximize tax efficiency by strategically liquidating their holdings during a period in their lives when it would be wisest, from a tax perspective, to do so.

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Therefore, we see Apple's conservative dividend policy juxtaposed by their aggressive share repurchase program as very positive. With that being said, dividend policy cannot be ignored in creating a company's valuation.
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In the next section, I will tie together all of the components of this valuation and include a valuation based on DRIPing Apple in, for example, a Roth IRA.
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Tying It All Together: Price Targets & Expected Returns
Below you will find what is normally the third step in my valuation model. Refer to some other far shorter articles of mine, in which I clearly employ the three step model, for further clarification.
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The third step always involves normalizing the share price for the reality that after 10 years, they will have a P/FCF multiple, by which their share price will be defined. $AAPL

Adding the three business share prices together, we arrive at a price target of $537.85 by 2030, which implies a CAGR of only 5.33% for the next 10 years based solely on share price appreciation.

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I want to point out that the largest influencing factor on this estimate is my assumption that Wearables, Home and Accessories would grow at an average rate of 20% annualized for 10 years. $AAPL