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.