Apple Inc.  (AAPL) reported good results for its fiscal Q1 ending Dec. 31, 2023. Its free cash flow (FCF) in Q1 was 24% higher YoY and 7.3% higher in the last 12 months than last quarter. As a result, AAPL stock could be worth up to 15% higher to $214 per share based on its powerful FCF.

Apple's cash flow statement showed that it generated $39.895 billion in operating cash flow in the latest quarter. After deducting $2.392 billion in capex spending, its FCF works out to $37.5 billion. That was 24% higher than the $34 billion in FCF it made in last year's fiscal Q1.

However, given the company's seasonal working capital requirements, it's more important to look at its FCF in the trailing 12 months (TTM). We can also look at its full-year FCF margins on this basis. This will help us project FCF going forward.

This is typically how value investors will look at a company. They like to assess a company's earnings and cash flow power based on its historical performance.

Free Cash Flow Projections

For example, Apple generated $106.9 billion in LTM FCF, based on data available on Seeking Alpha's TTM cash flow data page. This was 7.3% higher than the TTM FCF of $99.6 billion that Apple generated last fiscal quarter.

I discussed that in my previous Barchart article on Nov. 5, “Apple Could Still Be Worth More Due to Its Strong Free Cash Flow.” It showed that the company's TTM operating cash flow was $110.5 billion as of Sept. 30, and after deducting $11 billion in capex, the TTM FCF was $99.6 billion. So its Dec. quarter TTM FCF of $106.9 billion was 7.3% higher.

More importantly, Apple's FCF margins continued to rise. 

For example, I pointed out that last quarter its TTM FCF margin was 26.1% (i.e., based on TTM revenue of $383 billion). This quarter Apple had TTM revenue of $386.705 billion (again, based on Seeking Alpha data). So this means its TTM FCF margin rose to 27.7% (i.e., $106.9 billion/$386.705b), up from 26.1% last quarter.

This is likely due to the growing proportion of services in Apple's sales, which have much higher FCF margins. For example, in its fiscal Q1 services rose to $23.1 billion, up from $22.3 billion in the Sept. quarter.

As a result, we can conservatively project that Apple's FCF margins could rise to 28.0% over the next year. We can apply that FCF margin to forward sales estimates to project FCF. 

For example, analysts project that 2024 sales will reach $388.75 billion this fiscal year and $413.16 billion next year. In other words, on average sales could be on a run rate of about $400 billion.

So, multiplying a 28% FCF margin by $400 billion in run-rate sales over the next 12 months results in an FCF estimate of $112 billion. We can use that to set a target price.

Target Price Estimates

For example, if we assume that all its FCF might be paid out as a dividend, AAPL stock could have a 3.5% dividend yield. So, using a 3.5% FCF yield, we can assume its market cap would rise to $3,200 billion (i.e., $112 b FCF estimate/0.035 = $3,200 b). That is 11.5% higher than its present market cap of $2,87 trillion.

Moreover, even with a 3.25% yield AAPL stock would sport a $3.45 trillion market cap (i.e., $112b/0.0325). That is 20% higher than today's price. So, just a small movement in the FCF yield metric could lead to a higher valuation (and vice versa). 

Nevertheless, on average it's possible that AAPL stock could be worth 15% more if its FCF and FCF margins continue to expand. That means the AAPL stock price could rise to $213.73 (i..e, 15% over Friday's close of $185.85 per share).

Other analysts see a higher price as well. For example, Yahoo! Finance reports that 38 analysts have an average price target of over $200 per share. And AnaChart.com shows that 35 analysts have an average target of $198.62. These targets are about 6-8% higher than yesterday's price.

The bottom line is that investors in AAPL stock can rely on the company's steady free cash flow. It could lead to an 8-15% higher stock price over the next year.

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On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.