<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:</td><td>Thursday, February 8, 2018 12:40 PM</td></tr><tr><td>To:</td><td>Jeffrey Epstein</td></tr><tr><td>Subject:</td><td>Fwd: AAPL US: Apple Inc. - Attractive in volatile markets, cash cushion like none other
- BUY</td></tr></table>

Richard Kahn
HBRK Associates =nc.
575 Lexington =venue, 4th Floor
New York, NY =0022

Begin forwarded message:

From: =/b>"Ens, Amanda"

Subject: =/b>AAPL US: Apple =nc. - Attractive in volatile markets, cash cushion like none other - =UY

Date: =/b>February 8, 2018 at 7:28:50 AM =ST

To: =/b>"rkahn"

Reply-To: </b>"Ens, Amanda"-

I believe you still =wn? Let me know if you'd like to discuss further.

Global =research

Apple Inc.

Attractive in volatile markets, cash cushion like =one other

Reiterate Rating: BUY PO: 220.00 =SD I Price: 159.54 =SD

Equity | 08 February 2018

## Key takeaways

• Apple =s a defensive stock to own given derisked expectations, a strong cash =osition and incremental capital return

Shares =re currently discounting declining growth in hardware scenario and a =orse than run rate trajectory for Services rev

Our =CF based upside/downside scenarios are $232/$141 which represents =rowth/decline of 42%/13%.

<=, class="MsoNormal" style="margin: 0in Oin 0.0001pt; padding: Opx; =ine-height: normal; font-size: 12pt; font-family: 'Times New Roman', =erif;">

## FULL REPORT

## A =ame to own in volatile market conditions

In =imes of market turmoil, we turn to large cap stocks with low leverage, =igh cash balance, and attractive valuation. Apple offers all this as =ell as opportunities for future growth. Apple's large cash balance =ffers the opportunity to expand into new markets (Fig 1). Capital =eturn program remains strong (Fig 2) and we expect the company to =nnounce a new authorization in the April timeframe (could be higher =han the typical annual $30-50bn given cash repatriation), and we =lready model a 10% dividend increase in 2018. While iPhone X sales may =e lower than the Street had predicted (our estimates were lower) we =iew low single digit unit growth and mix adjusted ASP (average selling =rice) growth into 2019, with upside to gross margins. In addition, =ervices remain a key growth driver in future years. Reiterate =uy.

Balance Sheet and FCF remains =trong

Apple's balance sheet =emains strong with -$32/sh in net cash and investments =t the end of F1Q18. We expect continued strong free cash flow (FCF) of =bout $50-60bn, per year, over the next two years despite higher capex =announced plans to spend $30bn in capex in the US over the next five =ears. Total capex in F18 expected to be =$16bn).

Buybacks continue, capital return program =trong

So far, Apple has completed =ver $248bn of its $300bn capital return program, including $176bn in =hare repurchases against its $210bn buyback program. We estimate =pproximately $34bn remains under Apple's current =uthorization.

## Valuation even more attractive after recent =ullback

## Valuation even more attractive after recent =ullback (cont.)

AAPL shares are down —5% YTD =nd —10% from N/T peak of $179. Our detailed note on Apple =ervices revenue showed that shares are currently discounting a =declining growth in hardware" scenario and a worse than run rate =rajectory for Services revenues, which is to us too pessimistic. Our =CF analysis leads us to Bull/Bear case scenarios of $230/$141(Fig 3) =or Apple shares. Next catalysts for the stock would be announcement of =ew buyback authorization (April) and earnings and WWDC in the summer of =018.

*   Wamsi Mohan, Research Analyst, MLPF&S
*   Report Intended for \[Redacted]
*   Email: \[Redacted]

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2582804

## Valuation even more attractive after recent =ullback (cont.)

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