CNBC: When there's fear on the Street, Apple looks sweet

From Tim Mullaney's "Why a fearful stock market invested in Apple like it was a bond" posted Monday on CNBC Pro:

As always, discussion of Apple’s finances begins with its cash reserves. Analysts put them at about $62 billion, down from more than $81 billion a year ago. Apple has a good bit less cash than it once did, depleted by stock buybacks, but still, as Wedbush Securities analyst Dan Ives says, enough to run a small country. Apple also owns another $127.9 billion in liquid securities.

Then there is the company’s very consistent cash flow, now running at about $100 billion a year. About a quarter of sales now come from Apple’s services business, which is twice as profitable as hardware like iPhones and Macbook personal computers before accounting for corporate overhead and marketing costs, leading to expectations that cash flow will be at least $100 billion a year for the next decade, and probably keep rising, CFRA Research analyst Angelo Zino said.

“The market’s confidence is a pretty accurate perception of the products we see in the pipeline,” Zino said.  “It’s a massive company. It’s a mature high-margin business in iPhones and iPads, with products that are second to none. The growth drivers for the next three years are in services, and the Apple Car is out there.”

Because high-margin services businesses, especially online, command higher stock-price multiples than less-profitable hardware businesses, the shift in Apple’s mix has helped its price-to-earnings multiple rise to 28 times expected profits for its fiscal year, which ends in September.

Put those two factors together and more stock buybacks are expected. Indeed, Apple has let the dividend yield on its shares drop to a little more than half of 1% — less than even two-year Treasuries now pay — to make room for more buybacks, Zino said. The logic is simple: That getting a bigger share of Apple’s cash flow from a lower share count is a better deal than a dividend closer to the S&P 500 average of 1.3%.

My take: After 12 meandering paragraphs summarizing near-term Apple news, Mullaney shows that he knows something about the company.

4 Comments

  1. bas flik said:
    aapl as a safe haven is a really good story. is a new narrative. and will be important to us when market will stumble over the fake Tesla like stock printing companies.

    0
    December 6, 2021
  2. Robert Paul Leitao said:
    Yeah. Here’s how pundits get the thinking wrong: It’s not that Apple’s cash was “depleted” through buybacks, it’s that retained earnings were redeployed and returned to shareholders through buybacks. Among the reasons people invest in Apple is because Tim Cook & Co. remember who owns the firm. A little respect for shareholders does something good for the share price.

    7
    December 6, 2021
  3. Hap Allen said:
    I think it’s a big deal for market participants merely to take in the language “like it was a bond.” This seeds a whole new frame on the stock.

    Might it be contagious?

    1
    December 6, 2021

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