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Wowed Wall Street watchers raise forecasts after Apple's 'perfect' $46B quarter

post #1 of 49
Thread Starter 
Analysts on Wall Street were blown away by Apple's blistering holiday 2011 quarter, and promptly revised their estimates even higher following the news.

Apple's first quarter of its fiscal 2012 was so good, analyst Brian Marshall called it "the perfect quarter." Other analysts weighed in with descriptions including "supersized," "exceptional" and "iDominance."

Analysts also took the opportunity to increase their price targets for AAPL stock, with the most bullish of forecasts now calling for it to hit $670.

Piper Jaffray

Analyst Gene Munster has the highest price target amongst his peers, with the $670 forecast. AAPL is his top pick for 2012, as Apple's success is "a market expansion story as well as an upgrade cycle story."

While Munster was impressed by Apple's holiday quarter, he sees it as a precursor to 2012, which he previously said will be a "monster" year. He expects the "true force" of Apple's December quarter will be felt throughout calendar year 2012.

Munster also said that though investors getting numb to Apple's impressive results, he expects earnings revisions will move higher faster than the iPhone maker's declining earnings multiple.




"For the last eight years, Apple has been blowing away analyst estimates," he wrote. "Last night's $7B revenue upside was particularly impressive given it equaled Apple's total revenue for the Jun-08 quarter. While we are raising our earnings numbers for (calendar year 2012) by 24%, shares of AAPL were only up 8% in the aftermarket."

ISI Group

"The perfect quarter," in Marshall's eyes, was due to the fact that the iPhone and iPad generated about 85 percent of Apple's total gross profits. This helped the company beat its revenue guidance by about $9.3 billion and earnings per share guidance by $4.60.

"With minimal 'real' competitive threats to AAPL's major product families in (calendar year 2012), we believe the outlook for the next 4 quarters can be characterized as 'smooth sailing,'" Marshall wrote. "In our view, if something were to go wrong with the story, it would most likely result from idiosyncratic mis-execution on the part of AAPL or a material change in support from the global carrier community."

But Marshall said that's unlikely given Apple's historical track record. He expects an iPad 3 launch in March and a sixth-generation iPhone to arrive in the September-October timeframe to go smoothly.

Marshall also said that Apple possesses a revenue stream similar to a cable company, as though users are iOS "subscribers," but he still doubts that the market will apply a "full valuation" to the company and give it a decent price-to-earnings multiple.

Because of that, he's applied a 12-times multiple to his new calendar year earnings per share estimate of $41.50, up about 9 percent from his previous projection of $39. Adding in 25 percent credit of net cash, he arrived at a new price target of $525, up from $500.


The growth trajectory of Apple's cash hoard, via Asymco.


UBS

"Let me get a Q1... supersized," analyst Maynard Um joked. With Apple firing on all cylinders to end 2011, he said it's set up the company nicely for another strong performance in 2012.

"The magnitude of the upside is quite impressive," he said. He sees iPhone demand carrying into the March quarter, while an impending third-generation iPad launch will continue to drive growth.

And those trends will carry Apple into the fall of 2012, when the company is expected to introduce its next iPhone. UBS has maintained its buy rating for AAPL stock, and has a price target of $550.

Needham Research

Analyst Charlie Wolf was at a loss when trying to describe Apple's holiday quarter: "There is no other way to describe it. Apple crushed its first quarter."

He was most impressed by Apple's 110 percent increase in iPhone sales to 37 million, which easily bested his forecast of 32 million units. He also said that sales of 15.4 million iPads "put to rest the notion that underpriced and underpowered compelling tablets would have any affect on iPad sales."

Wolf also noted that with 5.2 million Macs sold last quarter, quarterly Mac sales now exceed annual Mac shipments through 2005.

He also took note of Apple's growing cash hoard, which is now worth nearly $100 billion. Wolf is hopeful that Apple Chief Executive Tim Cook will offer investors some sort of dividend out of its cash and reserves.

Needham Research has set a 12-month price target for AAPL stock of $540. Wolf said the major risk in the company's story is whether it can continue to innovate at the same rapid pace for years to come without late co-founder Steve Jobs at the helm.

Morgan Stanley

Beyond product upgrades like the next iPad and a future iPhone, analyst Katy Huberty sees Apple's distribution in China as a major part of its growth going forward. She believes Apple will ink a deal with China Telecom for the iPhone in the near future, while China Mobile will also come on board in late 2012 and early 2013.

"Adding the additional carriers in China helps open up access to the 150M high-end subscribers, 80% of which are on China Mobile's network," she said.

Morgan Stanley has maintained its "overweight" rating for AAPL stock with a price target of $515, though the firm's "bull case" scenario calls for the company's stock to hit $600.




RBC Capital Markets

"iDominance!" declared analyst Mike Abramsky, who raised his price target to $600 from $525 after Apple easily bested his projected iPhone sales of 32 million.

He also noted that Apple now has $104 per share in cash, after having its operating cash flow increase by $17.5 billion in the holiday quarter.

Abramsky sees Apple selling 81.4 million iPhones, 33.4 million iPads and 25.8 million Macs in the company's fiscal 2012. With a projected $160.7 billion in revenue, he sees the company growing 48.5 percent this year.




Deutsche Bank

Analyst Chris Whitmore has increased his price target for AAPL to $600 from $530. He said Apple's new product portfolio remains "incredibly strong" with new iPhone and iPad models expected this year.

"In addition, we expect Macs with Ivy Bridge should support incremental gains and Apple TV appears set to graduate from an 'Apple hobby' later this year," he wrote. "We anticipate an iOS device with Siri user interface and iCloud syncing has the potential to redefine the smart TV category in the same way the iPhone and iPad impacted the smartphone and tablet markets, respectively."

As for the third-generation iPad, Whitmore said he believes it will arrive early this year while the rest of the industry is refocusing its efforts on Windows 8-based tablets. That will give Apple even longer to extend its lead over the competition.

Sterne Agee

With a new price target of $550 (from $540), analyst Shaw Wu believes Apple remains in a position to outperform in a tough macro-econonmic environment. He has forecast $156.4 billion in revenue from Apple in its fiscal year 2012 with $43 in earnings per share.

Looking beyond to fiscal 2013, he sees Apple with $175.7 billion in revenue and $48 earnings per share.

Evercore

"That's a lotta iPhones," analyst Robert Cihra said to kick off his note to investors. He said Apple's guidance for the March quarter looks conservative, as usual.

"But we see demand plus supply-chain momentum continuing to look strong across iPhone cycling (e.g., incremental geo/carrier launches), upcoming refresh of iPad (March) and MacBook Air," he wrote.

Cihra reiterated his "overweight" rating for Apple stock, and increase his price target to $650, from $600. He sees Apple netting revenues of $161 billion in fiscal 2012, up 49 percent year over year.

JMP Securities

Despite Apple's blowout quarter, analyst Alex Gauna has maintained a "market perform" rating for Apple. Gauna admitted it's "embarrassing" for him to have that rating for such a "powerful result," but said he's electing to remain on the sidelines for now, "given the risk of this proving to be a peak margins and growth quarter."

Gauna also cited "elevated litigation uncertainty" and "management transitions" as factors that could hurt Apple going forward. JMP Securities does not have a target price set for AAPL.
post #2 of 49
Who, other than gullible investors, really cares what these people have to say?

It's the bloggers who really follow Apple, not Wall Street analysts. And the bloggers consistently outperform the professionals when it comes to predictions.

Wall Street needs to be shrunk to the size where it can be drowned in a bathtub.
post #3 of 49
RBC Capital Markets
Abramsky sees Apple selling 81.4 million iPhones, 33.4 million iPads and 25.8 million Macs in the company's fiscal 2012. With a projected $160.7 million in revenue, he sees the company growing 48.5 percent this year.


Hmmmm... Apple should have no problem hitting that target...

(btw - 81.4 million iPhones seems quite light as does 33.4 million iPads... 25.8 million Macs on the hand seems quite generous)
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post #4 of 49
Where is Slappy?
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post #5 of 49
Alex, Alex, Alex.....
post #6 of 49
Guess which company has pushed past Exxon to become the company with the highest market value? It might not be until next holiday quarter that Apple will surpass Exxon's world's highest quarterly profits but it will happen within a year. While these benchmarks are ultimately pointless they are points of reference and should give the average person an idea of just how big and important Apple is to the free market.

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post #7 of 49
Quote:
Originally Posted by island hermit View Post

RBC Capital Markets
Abramsky sees Apple selling 81.4 million iPhones, 33.4 million iPads and 25.8 million Macs in the company's fiscal 2012. With a projected $160.7 million in revenue, he sees the company growing 48.5 percent this year.


Hmmmm... Apple should have no problem hitting that target...

(btw - 81.4 million iPhones seems quite light as does 33.4 million iPads... 25.8 million Macs on the hand seems quite generous)

Take the highest ANALyst estimate.

Add 25% percent.

Prepare to learn that you have grossly underestimated Apple.
post #8 of 49
Quote:
Originally Posted by anantksundaram View Post

Alex, Alex, Alex.....

He's been saying that for 3 years now... one day he'll probably be right... one day...
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post #9 of 49
Quote:
Originally Posted by island hermit View Post

He's been saying that for 3 years now... one day he'll probably be right... one day...

But will his clients have made more money, even then?
post #10 of 49
But as we all know Wall Street can't get enough. They always want
more. Apple can have a 100 billion quarter and that still wouldn't satisfy them greed a$$ people. Wall Street would break Apple into pieces to pry a dime out its system.
post #11 of 49
Quote:
Originally Posted by aaarrrgggh View Post

But will his clients have made more money, even then?

You're assuming he'll still have clients...
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post #12 of 49
Quote:
Originally Posted by anantksundaram View Post

Alex, Alex, Alex.....

Probably only a 10 - 20 year trend... we'll just sit this one out.
post #13 of 49
I love how they think this was a peak quarter given that the iPhone 4S hadn't sales in China are not reflected in these numbers. Analysts are idiots.
post #14 of 49
And as we speculated, Apple's PE has compressed to sub-13. After a complete blowout of doubling earning and increasing revenues by 73%. Astounding. The stock increase today is less than half of what one would expect

For the faithful, it is a buying opportunity. I'm more convinced than ever this is going to hit $600 at some point, with a real chance of getting to $700-$800. You have to ask yourself where APPL will be in 5 to 8 years

I'm not sure why Apple does not do a massive stock buyback given it is undervalued. Something in the order of $50 billion dollars. Investors are not valuing the company properly and Apple should take advantage of it

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post #15 of 49
Quote:
Originally Posted by dmarcoot View Post

I love how they think this was a peak quarter given that the iPhone 4S hadn't sales in China are not reflected in these numbers. Analysts are idiots.

... or a peak quarter until the next holiday quarter.
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post #16 of 49
Quote:
Originally Posted by Red Oak View Post

I'm not sure why Apple does not do a massive stock buyback given it is undervalued. Something in the order of $50 billion dollars. Investors are not valuing the company properly and Apple should take advantage of it


Agreed. What better use do they have for $100B?
post #17 of 49
Quote:
Originally Posted by igxqrrl View Post

Agreed. What better use do they have for $100B?


They should buy an island nation and move everything there to escape excessive government regulation and taxes.
post #18 of 49
Quote:
Originally Posted by I am a Zither Zather Zuzz View Post

They should buy an island nation and move everything there to escape excessive government regulation and taxes.

Nooo.. they should look at those share holders who have held stock through the bad times and had faith ... and send them a big fat thank you check with 7 figures
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post #19 of 49
Quote:
Originally Posted by Red Oak View Post

And as we speculated, Apple's PE has compressed to sub-13. After a complete blowout of doubling earning and increasing revenues by 73%. Astounding. The stock increase today is less than half of what one would expect

Actually, even that's misleading. Apple's market cap is $400 B. They have about $100 B in cash, so the share price values the company at $300 B - or something like 8-9 times earnings. WAY lower than any rational analysis could make it - especially when you see companies like Amazon continuing to trade at nearly 100 times earnings.

Quote:
Originally Posted by Red Oak View Post

For the faithful, it is a buying opportunity. I'm more convinced than ever this is going to hit $600 at some point, with a real chance of getting to $700-$800. You have to ask yourself where APPL will be in 5 to 8 years

I'm not sure why Apple does not do a massive stock buyback given it is undervalued. Something in the order of $50 billion dollars. Investors are not valuing the company properly and Apple should take advantage of it

That certainly makes a lot more sense than a dividend-for tax reasons if nothing else.
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post #20 of 49
Honestly, I feel like a split would do more for the share price than a buyback. As stupid as that is, people would rather buy 3 shares at $150 than 1 share at $450. They see $450 and ignore the P/E. It looks expensive when it actually crazy cheap.
post #21 of 49
Quote:
Originally Posted by Red Oak View Post

I'm not sure why Apple does not do a massive stock buyback given it is undervalued. Something in the order of $50 billion dollars. Investors are not valuing the company properly and Apple should take advantage of it

Quote:
Originally Posted by jragosta View Post

That certainly makes a lot more sense than a dividend-for tax reasons if nothing else.

I too think (and have been saying for a while now) that this is the option for Apple that makes the most sense.

But it raises the hackles of a couple of our longtime posters, and the conversation invariably descends into a long argument over the merits of a buyback versus a dividend (I happen to think that it would be a bad idea for Apple to start paying dividends.)

The beauty of a buyback is that people who won't want to sell their Apple stock do not have to, they can just hold on to it. (Dividends affect everyone, regardless of whether they want it or not). (i) The signaling effects of a repurchase would be massively positive, I would guess. (ii) It can work out better tax-wise (as pointed out above), for those who choose to sell their shares back to Apple. (iii) Apple gets to keep it as treasury stock for future employee options exercises and does not have to dilute current owners' shares with new issues.
post #22 of 49
Quote:
Originally Posted by jakeb View Post

Honestly, I feel like a split would do more for the share price than a buyback. As stupid as that is, people would rather buy 3 shares at $150 than 1 share at $450. They see $450 and ignore the P/E. It looks expensive when it actually crazy cheap.

A split is no more than the equivalent of my giving you two $5 bills for one $10 bill. Means nothing. All your per-share numbers adjust to the new denominator.

Waste of time.
post #23 of 49
Quote:
Originally Posted by jragosta View Post

Actually, even that's misleading. Apple's market cap is $400 B. They have about $100 B in cash, so the share price values the company at $300 B - or something like 8-9 times earnings. WAY lower than any rational analysis could make it - especially when you see companies like Amazon continuing to trade at nearly 100 times earnings.


Agree on your first point, but your second point highlights the weaknesses of trying to broadly apply P/E. Of course the alternative many use is PEG, and on that metric AAPL is still quite undervalued, at least if you use trailing growth

However, I suspect analysts are assuming that the growth rate simply cannot continue in perpetuity, or even for much longer. It's hard to maintain a 100% growth rate!

My concern is that so much revenue and profit rides on a single product line, with a fickle user-base. But so far the fickle user-base has worked in Apple's favor
post #24 of 49
Quote:
Originally Posted by jragosta View Post

Actually, even that's misleading. Apple's market cap is $400 B. They have about $100 B in cash, so the share price values the company at $300 B - or something like 8-9 times earnings. WAY lower than any rational analysis could make it - especially when you see companies like Amazon continuing to trade at nearly 100 times earnings.

Except that cash is not subtracted from share value to calculate PE (and debt is not added). Stockholders have absolutely no access to this cash unless the company pays a dividend, so the share value minus cash number is purely theoretical and essentially meaningless as a measure of anything.
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post #25 of 49
Quote:
Originally Posted by anantksundaram View Post

I too think (and have been saying for a while now) that this is the option for Apple that makes the most sense.

But it raises the hackles of a couple of our longtime posters, and the conversation invariably descends into a long argument over the merits of a buyback versus a dividend (I happen to think that it would be a bad idea for Apple to start paying dividends.)

The beauty of a buyback is that people who won't want to sell their Apple stock do not have to, they can just hold on to it. (Dividends affect everyone, regardless of whether they want it or not). (i) The signaling effects of a repurchase would be massively positive, I would guess. (ii) It can work out better tax-wise (as pointed out above), for those who choose to sell their shares back to Apple. (iii) Apple gets to keep it as treasury stock for future employee options exercises and does not have to dilute current owners' shares with new issues.

Dividends are flat taxed at 15% (even less for very low earners), which is way less than most of us pay for earned income. As we know this is the aspect of the tax code that's helped the rich get way richer in recent years. So now I hear people who I presume are not super-wealthy saying that they might not want this cash forced on them because they will have to pay that low tax rate to keep it.

Okay, I'm listening. I'm sure the explanation will be very interesting.
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post #26 of 49
Is that the same Kathryn Huberty who put in a panic sell on AAPL @ $80 when I was buying my ass off, LOL? Did she change her name to Katy to distance herself from her moronic track record as a stock picker? What a stinking loser!
post #27 of 49
Quote:
Originally Posted by Dr Millmoss View Post

Except that cash is not subtracted from share value to calculate PE (and debt is not added). Stockholders have absolutely no access to this cash unless the company pays a dividend, so the share value minus cash number is purely theoretical and essentially meaningless as a measure of anything.

Let's say we have two companies, identical in every respect, except that company G has $10B in the bank and company A has $100B in the bank. I think we can all agree that the extra $90B in the bank adds value to company A.

Put another way, you could buy Apple for $400B +/-, deposit the cash in your bank account, and then re-sell the company. Clearly the resulting sale would be worth about $100B less.

It is quite common to subtract the cash and calculate the resulting P/E for valuation.
post #28 of 49
Quote:
Originally Posted by Dr Millmoss View Post

Dividends are flat taxed at 15% (even less for very low earners), which is way less than most of us pay for earned income. As we know this is the aspect of the tax code that's helped the rich get way richer in recent years. So now I hear people who I presume are not super-wealthy saying that they might not want this cash forced on them because they will have to pay that low tax rate to keep it.

Okay, I'm listening. I'm sure the explanation will be very interesting.

If Apple pays me $1, and I pay 15% on it and use the resulting $0.85 to buy Apple stock, I have 85% as much stock as I do if Apple had just bought $1 worth of stock instead of giving me the dividend.

*If* Apple continues to grow at this rate, then our money is better off staying within the company.

On the other hand, keeping it invested elsewhere (cash, and other investments) seems to an outsider like an odd choice. It is being used neither to grow the business nor returned to shareholders.
post #29 of 49
RBC Capital estimates are embarrassingly low for the iPad and iPhone regarding their total fiscal 2012 year numbers.

We're already nearly 50% in the first quarter on the iPad and iPhone with 3 quarters to go and we haven't even seen the refresh for either. Bravo.
post #30 of 49
Quote:
Originally Posted by MJ Web View Post

Is that the same Kathryn Huberty who put in a panic sell on AAPL @ $80 when I was buying my ass off, LOL? Did she change her name to Katy to distance herself from her moronic track record as a stock picker? What a stinking loser!

Yes, and once again Katy Huberty finds herself near the bottom of the prediction accuracy list.
post #31 of 49
Quote:
Originally Posted by igxqrrl View Post

Let's say we have two companies, identical in every respect, except that company G has $10B in the bank and company A has $100B in the bank. I think we can all agree that the extra $90B in the bank adds value to company A.

Put another way, you could buy Apple for $400B +/-, deposit the cash in your bank account, and then re-sell the company. Clearly the resulting sale would be worth about $100B less.

It is quite common to subtract the cash and calculate the resulting P/E for valuation.

No, we can't agree -- because it isn't true that cash on a balance sheet adds anything to stockholder value. Unless of course you are buying the entire company. That's the only time you as a stockholder get access to that cash. Is that your plan?

Quote:
Originally Posted by igxqrrl View Post

If Apple pays me $1, and I pay 15% on it and use the resulting $0.85 to buy Apple stock, I have 85% as much stock as I do if Apple had just bought $1 worth of stock instead of giving me the dividend.

*If* Apple continues to grow at this rate, then our money is better off staying within the company.

On the other hand, keeping it invested elsewhere (cash, and other investments) seems to an outsider like an odd choice. It is being used neither to grow the business nor returned to shareholders.

The value of buybacks to stockholders are not so clear or straight forward. Yes, the buyback increases EPS proportionally, but a proportional increased stock valuation isn't necessarily the result. It can be absorbed all or in part in a lower PE. But if you give me the cash-money, I get to do whatever I please with it. I sure don't have to buy more AAPL with it.

But I do agree with your last point. The purpose of capital is to grow the business. I've been arguing ever since Apple had $25b in a sock that they'd never be able invest that much in growing the business (at least not responsibly), so some of it should be distributed to the stockholders. Now that the bankroll is close to $100b, the argument for this is merely quadrupled. The argument against, as far as I can tell, doesn't exist.
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post #32 of 49
Quote:
Originally Posted by igxqrrl View Post

Agree on your first point, but your second point highlights the weaknesses of trying to broadly apply P/E. Of course the alternative many use is PEG, and on that metric AAPL is still quite undervalued, at least if you use trailing growth

However, I suspect analysts are assuming that the growth rate simply cannot continue in perpetuity, or even for much longer. It's hard to maintain a 100% growth rate!

My concern is that so much revenue and profit rides on a single product line, with a fickle user-base. But so far the fickle user-base has worked in Apple's favor

Can you show me any serious research that links PEG to anything?
post #33 of 49
Quote:
Originally Posted by igxqrrl View Post

It is quite common to subtract the cash and calculate the resulting P/E for valuation.

It is not a question of whether it is common or uncommon (actually, Dr. Millmoss is right, it is not common).

It is simply a question of how one might define and interpret a ratio such as P/E. They are both, subject to the right interpretation, valid metrics.
post #34 of 49
Quote:
Originally Posted by Dr Millmoss View Post

Okay, I'm listening. I'm sure the explanation will be very interesting.

I simply don't want to be given after-tax money if I don't want/need it (when Apple wants to give it to me).

Otoh, I have the choice with a share repurchase.
post #35 of 49
Quote:
Originally Posted by anantksundaram View Post

Can you show me any serious research that links PEG to anything?

Anything, such as? LIke any number, PEG should be considered in tandem with other numbers as a way of understanding a given stock's valuation and performance.

Quote:
Originally Posted by anantksundaram View Post

It is not a question of whether it is common or uncommon (actually, Dr. Millmoss is right, it is not common).

It is simply a question of how one might define and interpret a ratio such as P/E. They are both, subject to the right interpretation, valid metrics.

I suppose, but I'd argue that subtracting cash from market cap doesn't give you anything useful to interpret, except in fairly scare cases, which is why it's not normally done. If the company in question is trading at close to cash value (as AAPL has in the past) then you might impute from this that the downside risk for an investment is not great, since they could be taken over at a discount to that cash. Unless it also means the company is in danger of burning through that cash and going broke. Otherwise, for a healthy company in a good market, cash on the balance sheet is little more than a theory to an investor.

Quote:
Originally Posted by anantksundaram View Post

I simply don't want to be given after-tax money if I don't want/need it.

I have the choice with a share repurchase.

I believe I get more choices with cash income, especially when it's taxed at the lowest available rate, but for those who don't like having money stuffed into their pockets, my offer to take any unwanted dividend checks still stands. I await takers!
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post #36 of 49
Quote:
Originally Posted by Dr Millmoss View Post

Anything, such as?

Such as - as if it wasn't obvious - a stock's subsequent performance. (Let me know if you'd like some references for serious research on multiples, size, momentum etc).


Quote:
Originally Posted by Dr Millmoss View Post

I'd argue that subtracting cash from market cap doesn't give you anything useful to interpret, except in fairly scare cases, which is why it's not normally done. If the company in question is trading at close to cash value (as AAPL has in the past) then you might impute from this that the downside risk for an investment is not great, since they could be taken over at a discount to that cash. Unless it also means the company is in danger of burning through that cash and going broke. Otherwise, for a healthy company in a good market, cash on the balance sheet is little more than a theory to an investor.

All the discussions thus far - including the current one, and you post here - oversimplifies what 'cash' means for a global firm. While we don't know exactly how much, it's a fair bet that a very high proportion of cash held by firms like Apple is held outside the US, often in tax-free locations such as Singapore, and comes from after-tax money with much lower tax rates than the US rates. If it's brought back, it will incur the US statutory rate of 34%. Thus, it makes to keep that stuff not just for a rainy day, but also the periodic amnesty (not dissimilar to our periodic 'amnesty' for illegals) that might come around. Apple may end up with a huge opportunity cost associated with pulling the trigger too early.


Quote:
Originally Posted by Dr Millmoss View Post

I believe I get more choices with cash income, especially when it's taxed at the lowest available rate, but for those who don't like having money stuffed into their pockets, my offer to take any unwanted dividend checks still stands. I await takers!

If you want cash income, there are plenty of good shares available that help meet that need. You should sell AAPL and buy those. My liquidity, timing, tax, etc needs and imperatives are different from yours, and I am perfectly happy with things the way they are (for now). A repurchase offers me the option of doing nothing with my investment, while dividend payment does not.
post #37 of 49
Quote:
Originally Posted by Dr Millmoss View Post

But I do agree with your last point. The purpose of capital is to grow the business. I've been arguing ever since Apple had $25b in a sock that they'd never be able invest that much in growing the business (at least not responsibly), so some of it should be distributed to the stockholders. Now that the bankroll is close to $100b, the argument for this is merely quadrupled. The argument against, as far as I can tell, doesn't exist.

I think there are three common arguments:

1. Apple has an "institutional memory" of the dark times when the company was losing market share and profitability, and tends to be more conservative (or paranoid, depending on your view) about keeping a nest egg.

2. There is a _perception_ that companies which offer dividends are not growth-oriented. The basic idea is that if you are giving your money to your shareholders, you are saying "we're out of ideas". Its not clear there is much evidence for this theory, but the perception does exist and there are some who would not buy, or even sell if Apple did offer a dividend. (One counter argument is that there are lots of funds which are prohibited from buying Apple because they _don't_ offer a dividend).

3. Apple is gearing up for a huge purchase. I find this idea the least plausible, since they tend to buy smaller companies for their ideas, rather than trying to pull off big mergers (e.g. Compaq/HP).

I'm not sure I think these arguments are good, but those are the ones I've heard.
post #38 of 49
Quote:
Originally Posted by anantksundaram View Post

Such as - as if it wasn't obvious - a stock's subsequent performance. (Let me know if you'd like some references for serious research on multiples, size, momentum etc).

No stock metric does this, so that's an empty argument.

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All the discussions thus far - including the current one, and you post here - oversimplifies what 'cash' means for a global firm. While we don't know exactly how much, it's a fair bet that a very high proportion of cash held by firms like Apple is held outside the US, often in tax-free locations such as Singapore, and comes from after-tax money with much lower tax rates than the US rates. If it's brought back, it will incur the US statutory rate of 34%. Thus, it makes to keep that stuff not just for a rainy day, but also the periodic amnesty (not dissimilar to our periodic 'amnesty' for illegals) that might come around. Apple may end up with a huge opportunity cost associated with pulling the trigger too early.

All multinational corporations have this issue and it doesn't stop any of them who wish to from paying a stockholder dividend. These funds aren't exactly stranded abroad either, since multinational companies also have expenses abroad. Finally, repatriating them does not incur maximum corporate rates, just the effective rate after the foreign tax paid -- far less.

Not that any of this matters to the point I suppose you are attempting to make, which is that cash held on the balance sheet should make a difference to a stockholder. It still doesn't.

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If you want cash income, there are plenty of good shares available that help meet that need. You should sell AAPL and buy those. My liquidity, timing, tax, etc needs and imperatives are different from yours, and I am perfectly happy with things the way they are (for now). A repurchase offers me the option of doing nothing with my investment, while dividend payment does not.

Ludicrous. Really, this isn't just totally illogical by any definition of the word.
Please don't be insane.
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Please don't be insane.
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post #39 of 49
Quote:
Originally Posted by afrodri View Post

I think there are three common arguments:

1. Apple has an "institutional memory" of the dark times when the company was losing market share and profitability, and tends to be more conservative (or paranoid, depending on your view) about keeping a nest egg.

2. There is a _perception_ that companies which offer dividends are not growth-oriented. The basic idea is that if you are giving your money to your shareholders, you are saying "we're out of ideas". Its not clear there is much evidence for this theory, but the perception does exist and there are some who would not buy, or even sell if Apple did offer a dividend. (One counter argument is that there are lots of funds which are prohibited from buying Apple because they _don't_ offer a dividend).

3. Apple is gearing up for a huge purchase. I find this idea the least plausible, since they tend to buy smaller companies for their ideas, rather than trying to pull off big mergers (e.g. Compaq/HP).

I'm not sure I think these arguments are good, but those are the ones I've heard.

Well, they are not good arguments against a dividend. The sole criterion for whether a company should pay a dividend is whether they are carrying more cash then they can responsibly use for growing the company's business. The rainy day theory is especially scary, and we can only hope that nobody at Apple thinks this way. We as investors can only be happy that Apple (thus far at least) hasn't been tempted to use their cash for large mergers. You can count the number of those that work out on one hand and still have enough fingers left over to stir your coffee.
Please don't be insane.
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Please don't be insane.
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post #40 of 49
Quote:
Originally Posted by anantksundaram View Post

Alex, Alex, Alex.....

Philip Elmer-DeWitt has a nice article on him, ending with 'That, Mr. Gauna, is how real analysts do it.' Link
I’d rather have a better product than a better price.
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I’d rather have a better product than a better price.
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