New Fair Values for Apple, Tesla After Stock Splits

After adjusting our fair value estimates, both stocks still look rich

Susan Dziubinski 31 August, 2020 | 9:51AM

Both Apple (AAPL) and Tesla (TSLA) began trading on a post-split basis today.

Nothing fundamentally changes with a company when it splits its stock; its market capitalization remains the same, too. Companies usually split their stocks in an effort to make their share prices more attractive to individual investors, who may be put off by a too-high stock price. But in today's market, splits seem unnecessary, says Morningstar senior editor Ruth Saldanha.

"These recent high-profile splits seem superfluous given that most brokerage platforms now enable trading in fractional shares," she argues.

Below, our analysts share Morningstar's post-split fair value estimates for both stocks.

4-for-1 Stock Split Doesn't Alter Our View That Shares of Apple Look Expensive
"With the start of trading on Aug. 31, Apple will have initiated a 4-for-1 stock split that does not change our fundamental valuation of the company. The split had been announced during its most recent earnings call in late July. Based on our pre-split fair value estimate of $285 per share, our split-adjusted fair value estimate starting Aug. 31 is now $71 per share. While the split will make shares seem more affordable for small investors, we note the market cap and our overall valuation of the firm remain unchanged. While narrow-moat Apple remains well positioned in the near term given the upcoming 5G iPhone and stronger outlook for the Mac and iPad segments owing to the ongoing work- and learning-from-home dynamics, we recommend that prospective investors wait for a wider margin of safety given the precarious state of the global economy, particularly as shares have appreciated more than 125% from mid-March lows."

--Abhinav Davuluri, strategist

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Apple Inc106.84 USD-3.17
Tesla Inc442.15 USD4.42

About Author

Susan Dziubinski

Susan Dziubinski  Susan Dziubinski is director of content for Morningstar.com.

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