Originally Posted by anantksundaram
I am less and less sure of who's throwing around innuendo, after reading the sum total of your posts.
The reason I say that is, Einhorn's analysis is quite weak too, with few specifics, no numbers, lots of surmises and handwaving -- and yet, you seem quite comfortable with his assertions.
The only halfway credible point you've brought up on his behalf is that you say he thinks that somehow, splitting the 'growth' (share price gain) and 'value' (dividends into a separate claim) part will create 'value.' Neither you (nor he) has provided a shred of empirical evidence to back that up, except for an analogy to cuts of meat. Financial instruments that can be easily dissected/replicated in the market are very different from cuts of meat. Any large shareholder who wants to take the stock and securitize it into two separate claims reflecting growth and dividend components could easily do so. Heck, Einhorn could do this himself, if he truly is willing to put him money where his mouth is!
Nor have you, when requested, provided any backup to your paen to Einhorn. I asked you: "There is absolutely nothing in Einhorn's analysis that shows a larger dividend wouldn't increase share value. ....If there is actual analysis there, please share it with us." You haven't. Then I asked you, "If this was all so simple and obvious to do, why aren't dozens of companies who are flush with cash doing this in droves?" You didn't respond to that. Finally, I asked you, "The only large publicly traded companies that issue preferreds are some of the most staid, old businesses in the US, e.g., utilities. Is that the pool you see Apple belonging to?" You ignored that question too.
Anant, I appreciate your perspective and that you seem genuinely interested in honest discussion. I respect your right to disagree, but think you may be misunderstanding what I have said.
As far as innuendo, I would say Einhorn's arguments are more like speculation, as is any forecast of the effect of the various options on Apple's share price. I have no problem with that, except when someone states a forecast as a fact. I have tried to be clear in my language that it is speculation, and in fact used that very word multiple times I believe.
The innuendo I referred to included a couple of your questions you referred to, as well as others. Why aren't other companies doing this? I don't know, nor do I feel it is a necessary question to answer. It would certainly be helpful to have an answer though, if that same reason applied to Apple as well. Can you tell me why Apple should not do it? If you know, why not just say it instead of asking a question implying an answer? The same applies to your question regarding whether Apple fits the profile of companies who do issue preferreds. You imply that preferreds are only appropriate for that profile of company, but you didn't make any case to support that. Please explain why it is not appropriate for Apple, at least. I did address these questions when I said I believe Apple is a unique company with a unique problem, which is a reasonable hypothesis. Clearly Wall Street believes it has a fundamental difference, to give it such a low PE despite growth prospects in line with similar companies which are valued much higher on a PE basis.
It is apparent you haven't looked at Einhorn's charts, and I honestly don't know why you would waste time arguing against something you don't even know the details on. Asking me to fill in the blanks for you is not productive or considerate. I realize I am asking the same of you, but only because I have done as much research as I was able to already. I took the time to at least hear the other side (Einhorn, at that point), and found his plan to seem reasonable. But being skeptical, I am seeking input from others in hopes that if there is a downside to his plan, they might enlighten me.
For instance, neither Einhorn nor I said a larger dividend wouldn't raise the share price, just that it likely would be less bang for their buck. In fact he laid out a scenario of doubling the dividend, and the various prices implied at different yields. If Apple were priced according to a dividend yield of 4%, for instance, it would trade at $530. At 4.5%, it would be $471. So he at least does have concrete numbers for much of his arguments, and explanations for why he believes a certain outcome is likely, if not certain. Of course there is speculation involved, out of necessity. I have not and will not criticize anyone who assesses the probability of outcomes differently.
I think I supported my claims of unlocking value as well as I am able, and I think they are very reasonable. We will have to agree to disagree here. The only thing more I could add is to reiterate, the low interest rates could possibly result in a lower yield on the preferred being acceptable than in a different environment, so it might fetch a higher value than normal. But, the common might need to adjust less than the preferred value, basically because it has just secured cheap financing. This is my own speculation, not Einhorn's. But I think that is the basis of his plan, that value investors seeking safe income would value the dividends more highly than growth investors would.
Einhorn did make a case (with evidence and numbers) that Wall Street seems to value large tech companies at a higher PE the less cash as a percentage of market value they hold. I realize correlation doesn't imply causation, so it would be wise to explore other reasons for the PE disparities, but it does seem logical to me. It appears they have a "show me" attitude towards cash, and only give credit for it when it is returned it put to use to generate EPS growth. This supports the idea that investors are currently pricing very little of that cash into AAPL's price, which is evident to me in that a 10 PE is hard enough to support, much less a 7 PE if they were getting full credit for the cash.
I think I have been very reasonable, thoughtful, and fair. You won't find anyone more interested in understanding the truth without regard to "winning" an argument. If you are disappointed, perhaps I have misjudged you, but hopefully that is not the case.