US tax reform, if it passes, predicted to drive Apple toward $1 trillion market cap
While details on President Trump's proposed tax reform plan remain light, investors are hoping changes could allow Apple to bring some of its overseas cash back to U.S. shores, helping to push the company's stock price to new heights.
Analyst Amit Daryanani of RBC Capital Markets believes that Apple could be one of the largest beneficiaries in America, if the government can pass comprehensive tax reform. Specifically, he sees earnings per share growing by between $4 and $4.50 in fiscal year 2018, pushing the stock closer to a trillion-dollar market cap.
His projections were revealed in a research note to investors this week, a copy of which was provided to AppleInsider.
Taxes have become a new focus for both the president and Congress after failing to pass health care reform. Accordingly, the Trump administration has published a proposed tax framework that could reduce corporate tax rates, allow deductions for capital investments, and lower the repatriation tax rate for offshore cash.
However, the framework remains vague as the proposal comes together, leading Daryanani to draw a number of assumptions regarding limits for deductions, tax rates on foreign profits and more.
For example, he believes tax reform could reduce Apple's effective tax rate to below 20 percent.
He also assumes that the plan might offer a reduced 10 percent tax rate on accumulated foreign profits. That's particularly noteworthy to Apple, as the company had $261.5 billion in cash as of the end of last quarter, with 94 percent of it held overseas.
Daryanani's projections call for Apple to repatriate about $219 billion at a reduced rate, using some of the money for share repurchases while holding a "significant portion" for strategic options.
The analyst noted that "significant uncertainties around corporate tax reform" remain. He also cautioned that "increasingly aggressive actions of E.U. regulators" could largely offset any tax benefits seen through U.S. reform.
But the prospect of tax reform in America, plus the launch of the new iPhone 8 and upcoming iPhone X, have Daryanani remaining bullish on shares of AAPL. RBC has maintained its "outperform" rating on the company's stock, with a price target of $180.
As of Tuesday, Apple currently trades north of $155, with a market capitalization of over $800 billion.
Analyst Amit Daryanani of RBC Capital Markets believes that Apple could be one of the largest beneficiaries in America, if the government can pass comprehensive tax reform. Specifically, he sees earnings per share growing by between $4 and $4.50 in fiscal year 2018, pushing the stock closer to a trillion-dollar market cap.
His projections were revealed in a research note to investors this week, a copy of which was provided to AppleInsider.
Taxes have become a new focus for both the president and Congress after failing to pass health care reform. Accordingly, the Trump administration has published a proposed tax framework that could reduce corporate tax rates, allow deductions for capital investments, and lower the repatriation tax rate for offshore cash.
However, the framework remains vague as the proposal comes together, leading Daryanani to draw a number of assumptions regarding limits for deductions, tax rates on foreign profits and more.
For example, he believes tax reform could reduce Apple's effective tax rate to below 20 percent.
He also assumes that the plan might offer a reduced 10 percent tax rate on accumulated foreign profits. That's particularly noteworthy to Apple, as the company had $261.5 billion in cash as of the end of last quarter, with 94 percent of it held overseas.
Daryanani's projections call for Apple to repatriate about $219 billion at a reduced rate, using some of the money for share repurchases while holding a "significant portion" for strategic options.
The analyst noted that "significant uncertainties around corporate tax reform" remain. He also cautioned that "increasingly aggressive actions of E.U. regulators" could largely offset any tax benefits seen through U.S. reform.
But the prospect of tax reform in America, plus the launch of the new iPhone 8 and upcoming iPhone X, have Daryanani remaining bullish on shares of AAPL. RBC has maintained its "outperform" rating on the company's stock, with a price target of $180.
As of Tuesday, Apple currently trades north of $155, with a market capitalization of over $800 billion.
Comments
If I read things correctly Ireland has set up a new special tax rate of 6.5% that companies like Apple, Google and others with intellectual property can take advantage of.
Then there is Singapore, another strategic country in Apple's tax avoidance strategies. Their standard corporate tax rate is 17 percent but it expects zero for sales generated outside of Singapore. The US will never compete with that.
Good for shareholders like me; bad for just about everyone else.
The priorities in the US have changed from concessions to EU demands to prioritization of US citizens. That’s where priorities should be.
Apple wants to repatriate some (perhaps a significant portion) of foreign cash in order to continue with share repurchase program without having to take on too much additional debt. Right now, Apple is spending just about all of their domestic cash (after all other needs) on some repurchases, and then taking on debt to fund the rest. Apple has accumulated ~100B USD in debt so far (net cash is still at an all time high even with that.
At the right repatriation tax rate, they would sooner bring back some of that cash to fund (at least some of) those buybacks going forward. Apple has already "accounted" for taxes at an average rate from an earnings perspective, so provided the repatriation is lower than what they have accounted for, there is no negative impact to earnings to bring it back. In fact, if the repatriation rate is less than they have accounted for, it would provide a small boost to earnings (all taxes paid less than what they accounted for in previous years).
Corporations which will benefit from such tax reform will not use that that extra cash to create jobs in this country history has proven this. More money will be hoarded overseas in tax shelters and the consolidation of wealth and power will keep it's steady pace.