WSJ: Apple has enough cash to run operations for a year

Even if it didn’t cut costs or sell a single iPhone.

From “Coronavirus Shows Cash Is King, Even for Biggest U.S. Companies” ($) in Thursday’s Wall Street Journal:

The fast-spreading coronavirus has prompted even the biggest U.S. companies to cut their spending and bolster their balance sheets, proving once again how cash is king, especially in times of crisis.

After a decadelong U.S. economic expansion, not every company has entered this crisis with the same cash cushion. Apple Inc. ended the year with $247 billion in cash, securities and account receivables, enough to run its operations for more than a year even if it didn’t cut costs or sell a single iPhone. Discount retailer Dollar General Corp. had $240 million, enough for about four days, in the unlikely event it had to shut its doors and didn’t cut any costs.

Technology companies generally operate with more cash on hand than retailers, which often have assets in unsold inventory. The median amount of cash and other readily available assets on an S&P 500 tech company’s books at year-end was enough to let it operate about 270 days in an extreme scenario without revenue or cost cutting, while the median was closer to 60 days for retailers, according to a Wall Street Journal analysis.

My take: Another benefit of its cash cushion is that Apple is not subject to the restrictions on stock buybacks that the COVID-19 relief package will impose on companies receiving aid.

9 Comments

  1. Jerry Doyle said:
    “…. My take: Another benefit of its cash cushion is that Apple is not subject to the restrictions on stock buybacks that the COVID-19 relief package will impose on companies receiving aid.”

    Yes, but will Covid-19 cause Apple to revisit its current buyback program for the purpose of stockpiling cash for future pandemic like global events?

    Perhaps our emeritus Apple buyback scholar Joseph Bland will share his thoughts on this subject matter. Others’ perspectives also are welcomed.

    0
    March 26, 2020
    • Jerry Doyle said:
      You all may remember that Steve Jobs was infamous in his behavior of hoarding cash when he was the CEO. Steve had a deep fear of events beyond his control that could impact Apple negatively to the point where “cash is King” for Apple’s ongoing security and longevity.

      2
      March 26, 2020
  2. Dan Scropos said:
    I’m rounding, so bear with me. More importantly, Apple has enough cash to buy back shares for at least 9-10 more years. They’re spending ~$65 billion annually in buybacks and netting ~$55 billion. That’s ~10 more years to get through their net position of $100 billion in cash, assuming growth and R&D offset each other.

    This event will also prohibit other companies from repurchasing stock. There should eventually be a rotation into cash rich companies like Apple, Google and Microsoft. In the meantime, Apple around $250 puts shareholders in a nice position to see the share count dip below 4 billion shares at some point next year.

    When things normalize, let’s assume by next year, Apple, at worst, will be earning $60 billion and have 4 billion shares. EPS of 15 and what I believe to be a fair multiple of 25 puts the share price at $375. That’s a nice 12-18 month gain for buyers today. I suspect Mr. Buffett and his team have figured that out.

    5
    March 26, 2020
  3. Fred Stein said:
    A good time to revisit Antifragile.

    With $250T in global debt, covering, I assume personal, corporate and sovereign, some significant portion can’t be covered. That instability will drive conservative, yield oriented investors to AAPL.

    Ironically, the current risk averse sentiment gives Apple time to buy AAPL on the cheap (20% to 30% below what it is worth – who knows what it is really worth?)

    3
    March 26, 2020
  4. Fred Stein said:
    Apple in five years:
    Sold over 1B 5G iPhones
    Stock above $500 / share
    About $20 in total dividends / share
    Launched 5 new revenue streams
    Bought back 25% of shares
    Grows top line by about 25%

    Am I too conservative?

    4
    March 26, 2020
    • Gregg Thurman said:
      Without more clarity on your dividend estimate I’m in total agreement with everything excepting dividend growth.

      0
      March 26, 2020
  5. David Baraff said:
    You expect the dividend to increase from $3.08/share to over $20/share in five years?

    I don’t think so.

    1
    March 26, 2020
    • Dan Scropos said:
      Gregg/George-I believe Fred is using an aggregate number over the entire 5 years.

      2
      March 26, 2020
  6. George Ewonus said:
    Thank you, Philip, for the Scrooge McDuck graphic. That was one of my favorites as a young child watching Saturday morning cartoons! Made me smile.

    0
    March 26, 2020

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