Neil Hughes
With billionaire investor Carl Icahn pushing for Apple to initiate a larger share buyback, RBC Capital Markets believes the iPhone maker could nearly double its current $60 billion in planned expenditures while maintaining a manageable level of debt in order to boost its share price.
Analyst Amit Daryanani sees such a move adding about $4 to Apple's fiscal year 2014 earnings per share, an increase of about 10 percent. Most large cap companies have a debt to earnings before interest, taxes, depreciation and amoritization ratio of about 2x, while Apple is currently at 0.3x.
If Apple were to accrue more debt and nearly double the size of their planned buyback to about $115 billion, the company could still have a debt-to-EBITDA ratio of 1.3x, Daryanani said. That would keep it well below other large cap companies and in line with fellow tech company IBM.
He sees a major increase to Apple's stock buyback program potentially boosting the value of AAPL shares by as much as $90.RBC Capital Markets believes Apple could afford to take on more debt in order to boost its stock price.
Apple plans to spend $60 billion through 2015 to repurchase shares. With its stock off more than $250 from its all-time high, Apple opted to accelerate its schedule and spend $16 billion last quarter to buy back 36 million shares.
Apple still has more than $40 billion to buy back shares over the next two years, but Icahn believes the company should accelerate those plans, and encouraged Chief Executive Tim Cook to do so in a conversation earlier this week. The investor also revealed that he has a "large position" in the company worth about $1.5 billion, a revelation that helped to push AAPL shares past $500 on Wednesday for the first time since January 23.
Regardless of whether or not Apple does boost its buyback program, Daryanani said investors will remain focused on the company's new iPhones, which are expected to be introduced at a media event on Sept. 10. He has upped his price target for AAPL from $475 to $525, with an "upside scenario" of $600.
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35 Comments
[quote name="AppleInsider" url="/t/159064/rbc-believes-apple-inc-could-double-60b-share-buyback-ups-price-target-to-525#post_2380763"]With billionaire investor Carl Icahn pushing for Apple to initiate a larger share buyback, RBC Capital Markets believes the iPhone maker could nearly double its current $60 billion in planned expenditures while maintaining a manageable level of debt in order to boost its share price.
Analyst Amit Daryanani sees such a move adding about $4 to Apple's fiscal year 2014 earnings per share, an increase of about 10 percent. Most large cap companies have a debt to earnings before interest, taxes, depreciation and amoritization ratio of about 2x, while Apple is currently at 0.3x. If Apple were to accrue more debt and nearly double the size of their planned buyback to about $115 billion, the company could still have a debt-to-EBITDA ratio of 1.3x, Daryanani said. That would keep it well below other large cap companies and in line with fellow tech company IBM. He sees a major increase to Apple's stock buyback program potentially boosting the value of AAPL shares by as much as $90.[/quote] OK. Let's do a little math. Current share price is around $500. Daryanani thinks that an increased buyback would add $90 per share to the value. But that increased buyback is twice what has been approved, so let's only use the currently approved buyback which would therefore add $45 to the share value. And his price target is $525? Sounds like a pretty pessimistic viewpoint.
We don't care about analysts. We dislike analysts. Analysts are pond scum - harsh perhaps, but they do not care about Apple long term - they want cash now. Apple needs to focus on products and excellence. Share buy backs are good for shareholders, which I like, but Icahn and the analysts should bugger off. This is not a long term strategy for products.
I do not have the feeling Carl Icahn has Apple's best interest in mind. He is in this to make quick billions. There is nothing wrong with Apple pursuing its current repurchase plan, which has actually retired more shares more quickly than expected. Taking on more debt to increase the stock price is a losing move for Apple. Wall Street would make billions then turn against Apple using unrevealed Asian sources who rumor any kind of problem to knock the stock price down while earning more billions betting against the company. We have already witnessed one of the largest financial decimations occur over the last year as Wall Street pumped Apple above $700 per share then brought the company down to $400 just on rumors that have yet to pan out. Not one analyst has or will apologize for their actions because of greed, greed and more greed. Apple has a ton of money and Wall Street and the US government want it. The future of the company be damned as long as they can squeeze every penny they can from Apple today!
I don't really understand why everyone wants Apple to blow all their money buying back shares instead of developing new products with it.
This is too much. I was in favor of Apple initiating a dividend and some buyback when it wasnt doing any of those and Apple did it. Now we have leeches that want to suck the life out of Apple to make a quick buck.
What is really needed is the US gouv to address the insane corporate tax rates. If Apple could bring back its cash in the US it would not have to borrow any money. I dont mind the cash going down to around 100 billions, but I would not pay more and keep that cash in reserved.
The US needs to lower tax rates of offshore money into single digits and lower domestic tax rate below 20%. For example, Canada as a corporate tax rate of 15% compare to 35% in the US.