Apple Inc. (AAPL), Texas Instruments Incorporated (TXN), Take-Two Interactive Software, Inc. (TTWO): Wednesday’s Top Upgrades (and Downgrades)

Optimists may note that Texas Instruments Incorporated (NASDAQ:TXN) is a monster cash producer, and generated $2.9 billion in positive free cash flow over the past year — about 40% more than GAAP earnings. But this still leaves the stock trading for about 15 times FCF, and the best I can say about that valuation is that, assuming 9% growth and maintenance of the company’s 2.9% dividend yield, it makes the company look “only” 25% overvalued, and not cheap. On balance, I’d be more inclined to follow FBR’s advice and sell, rather than buy.

Apple Inc. (NASDAQ:AAPL) of the analysts’ eye Apple Inc. (NASDAQ:AAPL) introduced two new iPhone models yesterday, and analysts are applauding, with at least four stock shops — Oppenheimer, FBR, Telsey Advisory, and Canaccord Genuity — all upping their price targets to anywhere from $525 to $600 per share. Investors, however, seem unimpressed.

Apple Inc. (NASDAQ:AAPL) shares are down more than 5% as of this writing, and trading around $465. Should they be?

By all the numbers we can see today, no. At today’s post-announcement prices, Apple Inc. (NASDAQ:AAPL) costs less than 12 times earnings — a huge discount to the 15% earnings-growth estimates that we see projected for it on S&P Capital IQ, and an even bigger discount to the projections for 20% long-term earnings growth shown on Yahoo! Finance.

That’ s before you credit Apple Inc. (NASDAQ:AAPL) for the $25.7 billion worth of net cash in its bank account…

… and before you notice that the company’s $43.2 billion in free cash flow is nearly 15% more than the “earnings” the company is allowed to claim under GAAP accounting standards…

… and before you crunch the numbers, and find that Apple stock is therefore selling for an enterprise value-to-free cash flow ratio of just 9.3.

What all this means is that it’s pretty much irrelevant whether Apple grows its profits at the 15% annual rate that Capital IQ calculates, or at the 20% reported on Yahoo! Finance. At an EV/FCF ratio of nine and change, the stock’s definitely got room to run up to any of the price targets that Wall Street now postulates, and certainly is cheap enough to buy.

The article Wednesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith owns shares of Apple. The Motley Fool recommends Apple and Take-Two Interactive. The Motley Fool owns shares of Apple and Microsoft.

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