Why isn’t Apple worth $213 a share?

This guy on Seeking Alpha asks a good question.

Is it my imagination, or has the quality of work gone up on that catch-all drawer of freelance business analysis called Seeking Alpha?

I mention it today because one of their contributors on Thursday answered—or tried to answer—a question a lot of Apple investors have been asking: What happens to Apple’s share price if the company funnels 100% of its repatriated cash into a massive stock buyback?

The piece is by one J.M. Manness, a software quality assurance guy who writes fiction and Apple commentary on the side. His writing about Apple so far seems not  unreasonable.

In his latest, Apple Repatriation To Drive EPS By As Much As 22%, he predicts:

Apple will spend virtually all the reclaimed $163 billion on repurchases over the next two to four years. I believe they will even fund the $38 billion tax payment from future profits.

If Apple spends $160 billion on repurchases, and the average price paid is $200, then that would retire 800 million shares, bringing the total down to roughly 4.2 billion.

If this had been done on December 30 last year, with FQ1 earnings of $20 billion, the EPS would have been $4.76 instead of $3.89. This is the kind of effect it would have going forward: a 22% rise in EPS.

Adding the 22% (as if Apple could magically buy share with cash tomorrow) this would give a share price of $213.

The question is simple.

If Apple is worth a PE of 18, and the cash position is worth 22%, then why is Apple not worth $213 today?

My take: Good question.

See also: Checking in on the largest capital return program in the history of capitalism.


  1. Robert Harris said:

    Perhaps because before they disclose what they will do with the cash the value of the cash to the market has a different value than once we know for sure.

    February 23, 2018
  2. Ken Cheng said:

    Sounds like an arbitrage opportunity.

    February 23, 2018
    • Fred Stein said:

      Or an opty to sell puts 10% below market price 1 year into the future. Even if AAPL remains depressed, just kick the can down the road – buyback the put and sell the same price point further into the future. The longer AAPL is down, the better for future EPS.

      February 23, 2018
  3. Brian Loftus said:

    Expecting Wall Street to suddenly value Apple like we see Apple is probably not going to happen in my lifetime. It is the marginal buyers and sellers who set the price and the school of business they all went to is expecting the ASP of the iPhone to move towards the ASP of the Android phones because “good enough” is well – “good enough.”
    It does not matter that this has not happened yet and it does not matter that the Mac has maintained an ASP far above the average Windows machine for more than 3 decades. Their teaching and therefore their belief is that this cannot be maintained indefinitely.
    I suspect the only reason why a PE of 18 is being maintained now (instead of the more usual 12-15) is because a 15% increase in earnings next year is set by the new tax law.
    The good news is that Apple will return to share holders about what they make each year. With a PE of 18, that means a built in 5.5%. With the usual PE of 15 – more like 6.67%. Since I expect Apple to grow as they add more products – I see the 6.67% return as a minimum.
    I do not – however – expect Wall Street to ever recognize the error. Remember, Apple created their own “Apple University” for their own employees because they do not do things the way that Wall Street wants them to do.

    February 23, 2018
  4. Fred Stein said:

    AAPL is worth $216 or at least above $200..

    But markets are not ‘efficient’ despite what economists say. Look at the price history of any financial instrument and this becomes obvious. Most often, herd instinct pushes asset prices too high or low.

    This herd instinct has kept AAPL discounted in a range of 10% to 30% to value for over five years.

    February 23, 2018
  5. Ken Cheng said:

    What was Carl Icahn’s value he placed upon Apple a couple years ago? $210? He estimated a 20% tax rate, etc. May have to dig up that letter of his.

    February 23, 2018
  6. David Drinkwater said:

    This discussion seems to overlook the fact that retiring 800 million shares also retires about $2 billion in annual dividends, because those shares don’t exist anymore.

    $2 billion saved over ~ 5 billion shares is $0.40 per share saved (or earned).

    That’s gonna add up a bit!

    Eventually, long-term share-holders will get that back.

    February 24, 2018

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