Analyst: Apple will bring $214 billion back to the U.S.

As predicted, the bulk of its repatriated billions will go to buybacks and dividends.

From a note by Loup Ventures’ Gene Munster posted Thursday:

We … anticipate Apple will increase its share buyback by $69B, which will be added to the $166B that Apple has already spent on share repurchases from Jun-12 to Sep-17. Additionally, we expect Apple will increase its annual dividend by 15%, higher than the 10% increase they announced in April of both 2017 and 2016.  We believe Apple will maintain its debt level at the $104B. In theory this will leave Apple with about $150B in cash, but in practice it won’t get that low (more on that below). We look for this to be announced in April 2018, when Apple reports its Mar-18 quarter.

About the cash that remains: It’s unrealistic to assume that Apple will reduce its cash balance from $269B to $150B. Keep in mind our $150B cash estimate reflects the total cost of the buyback and dividend. In practice, the cost of those two programs will be spread out over 3-4 years, and Apple will continue to generate cash during that time. To give a sense of Apple’s current cash generation, the company generated $31B in cash from Sep-16 to Sep-17. If we assume $30B in annual cash generation for the next 4 years implies a 2022 cash ending balance of $270B, unchanged from the $269B today.

Unchanged in Muster’s scenario: Apple’s appetite for acquisitions and its global headcount.

My take: Munster sounds like he knows what he’s talking about. Of course, he’s been wrong before.

9 Comments

  1. Ken Cheng said:
    “As predicted”
    You’re predicting Gene’s guess?

    0
    December 21, 2017
  2. Gregg Thurman said:
    Because over half of Apple’s offshore cash has been previously designated as held for offshore investment/expenses it is untaxable. Ergo, there is no set asides for this amount.

    Estimating the amount designated as held for offshore use and applying a 15.5% tax rate I get ~$17.5 Billion in tax obligation on that portion of cash held for offshore investment repatriated to the US.

    Apple has set aside (contingent liability) at the rate of 35% on that amount not designated for investment offshore. The amount of the set asides is ~$39.5 Billion. Applying the new tax rate to those funds reduces Apple’s tax obligation by ~$23 Billion leaving a balance due of ~$15.7 Billion.

    Combing the tax obligation of previously untaxed offshore cash (~$17.5 Billion) with the adjusted tax obligation (~15.7 Billion) results in a total tax obligation reduction of ~$6.3 Billion. That translates to a one time increase in EPS of $1.25. Certainly not the “windfall” some WS analysts have described it to be.

    The real benefit of the tax bill is the ongoing 21% corporate tax rate, and the 15.5% tax on offshore earnings offset by taxes paid to offshore agencies. Essentially this means offshore cash can be repatriated with zero US tax consequence.

    If I have calculated this accurately, Apple’s future combined tax obligation on income will be ~16.4%, down from 5 year average of 25.96%.

    That estimated reduction in Apple’s effective tax rate would have increased net income by ~$49 Billion over the last 5 years, increasing ttm EPS by ~$5.02.

    Applying today’s Closing PE to $5.02 results in an increase to AAPL’s valuation of ~$95. $270 sounds good to me. Now imagine how the ongoing tax rate will impact AAPL’s valuation over the next 5 years.

    I’m expecting price target increases resulting from Trump’s signature on this bill. I would also expect a serious pop in AAPL come January’s guidance for the March quarter.

    2
    December 21, 2017
    • Stephen Young said:
      @Gregg- Will Apple go back and restate earnings based on the lower tax rate? Also if true do you think that nullifies the YoY comparisons for earnings and EPS? By nullifies I mean hurts Apple’s share price.

      0
      December 22, 2017

Leave a Reply