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

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  • Reply 21 of 48
    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.
  • Reply 22 of 48
    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
  • Reply 23 of 48
    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.
  • Reply 24 of 48
    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.
  • Reply 25 of 48
    mj webmj web Posts: 918member
    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!
  • Reply 26 of 48
    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.
  • Reply 27 of 48
    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.
  • Reply 28 of 48
    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.
  • Reply 29 of 48
    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.
  • Reply 30 of 48
    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.
  • Reply 31 of 48
    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?
  • Reply 32 of 48
    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.
  • Reply 33 of 48
    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.
  • Reply 34 of 48
    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!
  • Reply 35 of 48
    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.
  • Reply 36 of 48
    afrodriafrodri Posts: 190member
    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.
  • Reply 37 of 48
    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.



    Quote:

    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.



    Quote:

    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.
  • Reply 38 of 48
    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.
  • Reply 39 of 48
    philboogiephilboogie Posts: 7,462member
    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
  • Reply 40 of 48
    Quote:
    Originally Posted by Dr Millmoss View Post


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



    It might help you to understand the literature a bit better. Trying to offer some help in that direction, that's all. There is no law against willful ignorance.



    Quote:
    Originally Posted by Dr Millmoss View Post


    Ludicrous. Really, this isn't just totally illogical by any definition of the word.



    Frankly, not even close to the ludicrousness that your intransigent posts display!



    As I said before, a conversation with you is a waste of time. Should have known better than to start this.....



    Quote:
    Originally Posted by anantksundaram View Post


    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



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