Neil Hughes
Apple is set to announce an update to its capital return program in April, and investment firm RBC Capital Markets believes the company could return some $65 billion to investors annually, creating yet another reason to buy into the company's stock.
Analyst Amit Daryanani issued a new research note on Thursday, a copy of which was provided to AppleInsider, announcing that he has raised his price target on shares of AAPL to $140, up from his previous prediction of $130.
Daryanani believes the company could "comfortably" announce a $65-billion-plus capital return program for fiscal year 2016. He sees increases in both dividends and buybacks as a use for the company's massive cash hoard.
Apple generated $34 billion in cash in its last quarter alone, and RBC models that it will accrue a total of $66.6 billion in fiscal 2015. That would be in addition to the $179 billion in cash the company had at the end of the December quarter.
Daryanani's expectation is that Apple will return 100 percent of its free cash flow to investors, helping to finance a 50 percent increase in its quarterly dividend to a 2 percent yield.
The analyst was encouraged by recent comments from Apple Chief Executive Tim Cook, who said that the company is looking to return its excess capital to shareholders. Cook also said that Apple are not interested in being "hoarders" with their massive pile of cash.
Apple first announced a $45 billion capital reinvestment program in March of 2012, funding a quarterly dividend and share repurchases. The company increased its plan to $100 billion in April of 2013.
Beyond revisiting its capital return program, Apple has a number of other catalysts on the horizon that could help drive the company's stock price higher, Daryanani believes. Specifically, he cited the forthcoming launch of the Apple Watch in April, as well as sustained growth in Apple Pay and increases in service revenues.
RBC Capital Markets has maintained its "outperform" rating on Apple stock. The company's projections also include an "upside scenario," where it believes shares of AAPL could reach $150, while its "downside scenario" could see shares slide to $100.
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15 Comments
Some day the iPhone cash cow will end and Apple stock will return to Earth. I think it is a mistake to give away future financial reserves. Save it for when times are tough years from now. For all we know, interest on savings might be Apple's sole source of income some day. No company stays at the top of their game forever. That being said, Tim Cook is much smarter than this particular Apple fan so just ignore me :)
[quote name="jd_in_sb" url="/t/184865/rbc-says-apple-could-fund-65b-annual-capital-return-program-raises-target-to-140#post_2678469"] No company stays at the top of their game forever.[/quote] Coca-Cola has been doing it for decades.
Some day the iPhone cash cow will end and Apple stock will return to Earth. I think it is a mistake to give away future financial reserves. Save it for when times are tough years from now. For all we know, interest on savings might be Apple's sole source of income some day. No company stays at the top of their game forever.
How many billions of dollars do they really need to save, though? Nintendo kept something like $6 billion dollars in the bank, I believe, when their current console started to lose money. They survived 3 years, still have around $5 billion, and the console has started to make money again. Maybe not as much money as they'd like, but the cash-on-hand they have is only needed to weather losses, anyway. So if they really had to, that $6 billion could hold them out for maybe 10 years if they had kept losing money the way they initially had been a couple of years ago. Another way to think about it is that this is a company that's over 100 years old - they've weathered plenty of storms and are still happy that $6 billion will help them survive.
Granted, Apple is much larger and makes more expensive products, so could have more expensive failures, but the point is that whatever the "safe" amount of cash is, it's almost certainly less than $174 billion. Plus it's not like they're giving away the difference - they'll always benefit in some way.
Another analyst 'predicting' that Apple will increase the dividend. We know they will increase the dividend, because Cook has already told us that they will increase the dividend annually.
The variable of course is Tim Cook's definition of "excess" cash. Is that cash above $150B in the bank? $200B? I think Apple will keep a substantial amount on hand to ensure those "strategic options" can remain in play.
Now how best to fund the capital return program is an interesting question. Pure cash from US operations won't do it, I don't believe. So do they continue to issue debt, or do they at some point take a hit and repatriate some of the cash?