RBC says Apple could fund $65B+ annual capital return program, raises target to $140

Posted:
in AAPL Investors edited February 2015
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.

Comments

  • Reply 1 of 15
    jd_in_sbjd_in_sb Posts: 1,490member
    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 :)
  • Reply 2 of 15
    dasanman69dasanman69 Posts: 12,985member
    jd_in_sb wrote: »
    No company stays at the top of their game forever.

    Coca-Cola has been doing it for decades.
  • Reply 3 of 15
    Quote:

    Originally Posted by jd_in_sb View Post



    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.

  • Reply 4 of 15
    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.
  • Reply 5 of 15
    brucemcbrucemc Posts: 1,540member

    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?

  • Reply 6 of 15
    dougddougd Posts: 279member
    Kind of a no brainier to raise your target when the old target is almost realized
  • Reply 7 of 15
    Quote:


     

    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 1smile.gif


     

    I don't think you understand how much money were talking about.   Apple has essentially has the equivalent of the entire yearly GDP of Kentucky sitting in a bank account.    They don't need to save any more.... So giving some of that money to the owners (share holders) isn't a bad thing to do.

     

    Also apple stock really isn't flying high, I think it has a P/E of ~22 which is on the low end for a profitable, growing tech company.

  • Reply 8 of 15
    Quote:
    Originally Posted by Cobo View Post

     

    Also apple stock really isn't flying high, I think it has a P/E of ~22 which is on the low end for a profitable, growing tech company.


    Apple current PE is 17.4x. It's PE ex-cash (i.e., the value of its operating assets, since cash earns just about zero) is 13.2x.

     

    Apple's Forward PE is 14.1x, and FPE ex-cash is 10.7x.

     

    Yes, it's at the low end, but you want to get your basic numbers right before correcting someone else.

  • Reply 9 of 15
    Quote:

    Originally Posted by sog35 View Post

     

     

    Congrats.  Dumbest thing I've read all day.

     

    This is like saying its a mistake for your company to give you a paycheck twice a week because eventually the company is going out of business and needs that cash for a rainy day.  Pure stupidity.  Returning excess cash (and yes any cash beyond $180 billion is excess) to investors is the name of the game.

     

    So next time your employer tells you he's giving you a raise or bonus you should decline.  And tell your boss the company needs the cash just in case they reach a rough times in a decade.  I mean really.


    Well said, there is a reason the creator sprinkled the world's gene pool with "intelligence challenged people" because something for the rest of us to laugh at. Thanks for pointing out the absurdity of the original poster.

  • Reply 10 of 15
    Quote:

    Originally Posted by jd_in_sb View Post



    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 image

    I Agree he is  LOT smarter than you! thanks for the humor and humility

  • Reply 11 of 15
    Quote:

    Originally Posted by Benjamin Frost View Post



    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.

    But according to you Apple is doomed (my words)  because the Apple Watch will be a failure. I sense a bit of an incon(troll)sistancy in your posts?

  • Reply 12 of 15
    slurpyslurpy Posts: 5,179member
    Quote:
    Originally Posted by jd_in_sb View Post



    Some day the iPhone cash cow will end and Apple stock will return to Earth. image

     

    Return to earth? Stock is finally approaching the level that it should be. It's still massively undervalued, considering Apple is a $700B company that is still seeing massive growth and performance, to the tune of 40% last qtr. Also, it's safe to assume that Apple will have other cash cows when that happens, as they always do. 

     

    Quote:
    Originally Posted by Benjamin Frost View Post



    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.

     

    According to you, Cook is an incompetent, clueless moron, that should get out of the whole CEO business and unfit to lead Apple, so why should we take anything he says seriously? Also, if the Apple Watch is going to be a catastrophic failure as you so insistently state, then Apple will need to keep as much cash as possible once the stock falls in the toilet, no? Try to stay consistent with your views and conclusions. 

     

    We all know the source of your constant bitterness, which is that you never had the foresight (nor the cash, probably) to buy into Apple. That's not Cook's fault, it's yours, so deal with it.  

  • Reply 13 of 15
    Quote:

    Originally Posted by AppleInsider View Post



    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.

     

    In what universe does he seriously believe that Apple would EVER return 100% of all cash to investors, and not bank ANY of it nor invest ANY of it into R&D and other growth measures?

  • Reply 14 of 15
    I'd rather have AAPL buy back shares rather than pay dividends.
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