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Katy Huberty of Morgan Stanley explains why Apple's stock price is poised to explode
With shares of Apple just on the verge of breaching the $100/share mark -- and setting an all-time high in the process -- Morgan Stanley analyst Katy Huberty this week put out a research note detailing a number of reasons why the time is ripe to invest in Apple. Though shares of Apple have been on a rampage as of late, Huberty still believes there's much room for growth ahead. The report was obtained by Fortune and some of the highlights are as follows: For starters, Huberty writes that institutional ownership of Apple shares is much lower than it was back in 2012. The subtext here is that there is plenty of room for large hedge funds and the like to shore up significant positions in Apple. Specifically, Huberty points out that institutional ownership of Apple shares currently stands at just 2.3%. This is in stark contrast to the scenario in 2012 when institutional ownership of Apple was at its zenith at 4.5% Huberty also references Apple's capital return program which, to date, has already returned $74.5 billion to shareholders in the form of stock buybacks and dividends. Indeed, one could make a strong case that Apple's capital return program played an instrumental role in reviving stagnating shares of Apple. Not only do stock buybacks help pump up the company's quarterly EPS, but issuing dividends also opened up the stock to investment firms and funds who are exclusively beholden to stocks that issue dividends. Huberty also brings up Apple's R&D expenditures as a reason why the company's future looks bright. In fact, just last month we highlighted that Apple spent a record amount on R&D during the company's June quarter. Year over year, R&D expenditures increased by 36%. Commenting on this at the time, analyst Walter Piecyk observed that the last time Apple's R&D as a percentage of net sales was as high as it is today was before the original iPhone launched. $AAPL R&D was over 4% of revenue. It hasn't been that high since 2006, before the first iPhone launched. - Walter Piecyk (@WaltBTIG) July 22, 2014 Make sure to head on over to Fortune for a full recap of Huberty's report. There's not anything terribly surprising in there but she does provide a nice summary highlighting the myriad of reasons why Apple, going into 2015, is poised for big things. And speaking of high expectations, Huberty isn't the only one anticipating big things for Apple. Recall that Apple executive Eddy Cue during this year's Code Conference said that Apple's 2014 product pipeline is the best he's seen in his 25 years at Apple. Those are some unusually telling words coming from an Apple executive, and all the more tantalizing given that Cue was around for the launch of the iPhone. As a final point, Fortune points out that Morgan Stanley from March through June of this year added 2 million shares of Apple to their holdings, bringing their entire investment in Apple to $3.8 billion.
Without buybacks or dividends, Apple would have $210 billion in the bank
Apple's capital return program, originally announced back in March of 2012, has already returned vast amounts of money to shareholders in the form of dividends and stock buybacks Since its first incarnation, Apple has dramatically increased the scope of its stock buyback program, announcing in April of 2013 that it was expanding from an initial level of $10 billion to $60 billion. One year later, Apple increased its stock buyback program yet again, this time to $90 billion. This was also accompanied by steadying increases to Apple's quarterly dividend. All told, Apple's current capital return program aims to return $130 billion in value to shareholders. During Apple's most recent earnings report, Apple CFO Luca Maestri noted that the company has thus far taken action on "over $74 billion of our $130 billion capital return program with six quarters remaining to its completion." So with about a year and a half to go until the $130 billion figure is reached, Horace Dediu of Asymco earlier this week provided us with an up-to-date snapshot as to the state of the program. Breaking down Apple's $74 billion figure, Dediu notes that Apple thus far has doled out approximately $21.5 billion in dividend payments while spending approximately $53 billion on stock buybacks. That's an insane amount of cash and Dediu alerts us to the fact that Apple's cash position would be out of this world had they chosen to keep it all for itself. "What would have happened if Apple had not paid any dividends, bought back shares and taken on debt?" The answer is in the blue line. It would be about $210 billion today. There are about a dozen companies other than Apple worth more than that amount. On a related note, Apple's capital return program has had a discernible impact on the company's share price. Bloomberg reported not too long ago: The iPhone maker is up 25 percent since it spent $18 billion on its own shares between January and March and rallied 32 percent after a $16 billion buyback in 2013. Those are the highest four-month returns among the 20 biggest quarterly repurchases by any company since 1998, according to data compiled by Bloomberg and Standard & Poor's. As it stands now, Apple shares are on the cusp of an all-time closing high, having just barely topped $100 a share earlier today.
Apple's stock buybacks spurred massive share price increase
With Apple making more money than it knows what to do with, the company in March of 2012 announced a capital return program consisting of stock buybacks and dividends. The initial program was designed to return $45 billion in value to shareholders, but as the money continued to roll in, Apple earlier this year upped the program to $130 billion. During Apple's most recent earnings report, Apple CFO Luca Maestri noted: "We have now taken action on over $74 billion of our $130 billion capital return program with six quarters remaining to its completion." With the majority of Apple's $130 billion capital return program centering on stock buybacks, Apple's share price has been on quite a roll as of late. And according to a recent report in Bloomberg, Apple's stock buybacks and its subsequent impact on the company's share price is unrivaled. The iPhone maker is up 25 percent since it spent $18 billion on its own shares between January and March and rallied 32 percent after a $16 billion buyback in 2013. Those are the highest four-month returns among the 20 biggest quarterly repurchases by any company since 1998, according to data compiled by Bloomberg and Standard & Poor's. While many factors go into a company's share price, sweeping stock buybacks certainly help to the extent that they significantly reduce the number of free floating shares and thus help pump up quarterly earnings per share (EPS). Highlighting the massive scale of Apple's capital return program, Apple during the March 2014 quarter alone spent more money on stock buybacks than Google generated in revenue during the same period. On a related note, last year we detailed how the extremely low interest rates Apple took advantage of to finance its capital return program helps the company save money in the long run. In short, the interest Apple owes, over time, turns out to be less than the dividends it would otherwise be on the hook for.
What you need to know about Apple's upcoming stock split
In just a few days, Apple will be splitting its shares for the first time in over 9 years. The stock split will be a 7-1 split and will operate to make the stock more affordable to casual investors. With the stock split just around the corner, below is a primer on why Apple is splitting the stock, what this means for investors, and important dates investors should keep in mind. The Basics All shareholders who own Apple stock at the close of trading on June 2, 2014 will be eligible for the stock split. The actual stock split, however, won't transpire until Friday, June 6 when qualifying Apple shareholders will receive six additional shares for each share they own. Concurrently, the new price of Apple shares will be the final trading price as of June 6th divided by 7. If shares of Apple on June 6 close at $690, the new trading price, which will go into effect on Monday, June 9 will be $98.57 a share. How does this change Apple's financial situation? Not at all. Apple's market cap will remain exactly the same and the company will be no more or less healthier than it was before. So why Apple is splitting its stock There are a few reasons why companies decide to enact a stock split. In Apple's case, the company has said outright that they want to make the stock "more accessible" to investors. Imagine, for instance, a small-time investor with $600 to spend. With one share of Apple today costing over $630, that investor can't even get in on the action. Post-split, with Apple shares trading in the $90 range, investing in Apple and snatching up a few shares all of a sudden becomes a possibility. This has the added effect of making the stock more liquid. Of course, for investors with more than $600 to play around with, a lower share price has a psychological effect of increasing interest in the stock because investors enjoy getting more shares for their money. Summary Again, here are the important dates to keep in mind regarding Apple's upcoming stock split. June 2 - Investors who own Apple shares as of this date qualify for the stock split June 6 - Apple's stock will split at the close of trading on this day June 9 - Shares of Apple will start trading at their new post stock-split adjusted price There's a question in the comments regarding Apple's new dividend. Not too coincidentally, Apple's current dividend of $3.29 is perfectly divisible by 7, yielding a new quarterly dividend of $0.47.
Apple stock tops $600 per share for first time in 18 months
Since posting stellar earnings last week, not to mention the announcement of a widely-expanded capital return program, shares of Apple have been on the rise in a major way. During the last three trading days alone, Apple shares have increased by $76.21, which amounts to a rather sizeable 15.6% bump. Notably, Apple shares after the closing bell on Monday crossed the $600 barrier for the first time in approximately 18 months, hitting a 52-week high in the process. Indeed, the last time shares of Apple saw $600 was back in October of 2012. It's hard to pinpoint just what exactly is driving the surge in stock price given that there are a number of variables at play. First and foremost, Apple's revenue last quarter exceeded the consensus on Wall Street by a whopping $2 billion. For a company that analysts seemingly love to peg as a has-been whose products are continually being commoditized, that's an incredible "beat" from Apple. What's more, Apple also announced an expanded capital return program that left investors extremely pleased. In addition to increasing its dividend payout to $3.29 (an 8% bump), Apple also said that it would expand its stock buyback program. And oh yes, Apple, on top of all that, also announced a 7-1 stock split scheduled to go into effect next month. While splitting a stock does nothing to change its fundamental value, it does make the stock "appear" to be a better value, not to mention more affordable for smaller investors. Imagine, for example, a small investor with $1000 to spend. As it stands today, this investor would only be able to afford a single Apple share. With a 7-1 split, however, our friendly investor would be able to purchase 11 shares. Looking ahead, it'll be interesting to see how shares of Apple perform given that Tim Cook has assured the Apple faithful that new product categories are looming. As a final point of interest, note that Apple's all-time high was $702 which the stock reached back in September of 2012.
Apple last quarter spent more money on stock buybacks than Google generated in revenue
Since March of 2012, Apple has nearly tripled its capital return program. What started out as a US$45 billion effort to return value to shareholders has now skyrocketed to a $130 billion program. In conjunction with Apple's increased capital return program, the company recently made available the above chart which maps out a timeline of its dividend payouts and stock buybacks. The chart is worth highlighting because it really illustrates the magnitude of just how much money Apple is spending. As the chart indicates, Apple in the last two years or so has spent $46 billion on stock buybacks and $18.4 billion on dividend payouts. Over and above that, Apple in recent months has gotten even more aggressive about stock buybacks and and increasing its dividend amount. During the most recent quarter, for example, Apple spent $18 billion on stock buybacks. To put this figure into context, Google during the same time period generated $15.4 billion in revenue. In other words, Apple spent more money on stock buybacks last quarter than Google even generated in revenue. And yes, Apple may be issuing debt to fund the operation, but it's not as if it's doing so because it doesn't have the cash on hand. On the contrary, Apple today has $151 billion in the bank. The only hiccup is that the bulk of that cash is overseas, meaning that if Apple repatriated that amount back to the U.S, it'd be subject to a high corporate income tax rate. So from Apple's perspective, it's more economical for them to issue debt with an extremely low interest rate than it is for them to bring over their cash hoard abroad. Also worth mentioning is that Apple is one of the largest dividend payers on the planet. Since reinstating dividends back in March of 2012, Apple has cumulatively doled out $23.44 per share to shareholders. By way of contrast, Microsoft -- which is no stranger to having huge stockpiles of cash -- has paid out $1.96 per share in dividends during the same time period.
Apple's $14 billion stock buyback helps save money on dividend payments
Tim Cook yesterday revealed that Apple in the last two weeks alone snatched up US$14 billion worth of its own shares. That's an astounding figure that really puts Carl Icahn's investment in Apple to shame. To help put the $14 billion buyback into context, this tweet from Sammy the Walrus IV certainly helps paint an interesting picture. Apple spent $14 billion buying 3% of itself over the past two weeks, equivalent to roughly four Nests and a Motorola. - Sammy the Walrus IV (@SammyWalrusIV) February 7, 2014 But one aspect of Apple's stock buyback program that not many people seem to appreciate is that it not only helps Apple pad its EPS, but it also works to save Apple a boatload of money on dividends. Since shares of Apple plummeted following the company's earnings announcement, the company's average share price has been about $506.86. If we apply Apple's $14 billion expenditure to that, we see that Apple recently snatched up 27.624 million shares. Apple will of course be retiring those shares, but had it not gone on a recent spending spree, those shares would have cost Apple $84.254 million in dividends (27.624 million shares * $3.05 per share) per quarter. Stretched out over a year, Apple will be spending $337 million less on dividends than it would have otherwise. And this of course doesn't even take into account the previous $28 million Apple has spent on stock buybacks As it stands today -- February 7, 2014 -- Apple has spent $52 billion on stock buybacks and $15.8 billion on dividend payments. Note, though, that Apple's next dividend payment is set for February 10. Apple's current capital return program has a $100 billion budget, with $60 billion of that amount allocated for stock buybacks. With the $60 billion threshold almost in reach, it'll be interesting to see if Apple announces any changes, buyback-oriented or dividend-wise, soon. On that note, Cook told the Wall Street Journal yesterday that the company will announce an update to its buyback program by April.
Apple buys back $14 billion worth of own shares in 2 weeks and other news for Feb. 6, 2014
The Wall Street Journal is reporting that Apple, in the last two weeks alone, repurchased US$14 billion worth of its own shares. Recall that when Apple announced its earnings two weeks ago, the company posted an all-time quarterly record for revenue, along with record iPhone and iPad sales. But investors were wary of Apple's Q2 guidance and disappointed that iPhone sales weren't as high as they were anticipating. The fallout? Apple's stock tanked, dropping 12 percent in just a matter of days. Apple's reaction? Invest in itself. Speaking to the Journal, Tim Cook expressed "surprise" at the market's reaction to Apple's earnings results. Nonetheless, with Apple trading in the lower $500 range for the past two weeks or so, Cook said the company wanted to take advantage of the opportunity. "It means that we are betting on Apple. It means that we are really confident on what we are doing and what we plan to do," said Mr. Cook, speaking in a conference room at the company's corporate headquarters here. "We're not just saying that. We're showing that with our actions." Last we checked in, Apple had spent $28 billion in stock buybacks. With news that Apple has gone on a stock spending spree in recent weeks, Apple has now spent $52 billion snatching up its own shares. As part of Apple's capital program, it has pledged to spend upwards of $60 billion on buybacks. While some folks (we're looking at you Carl Icahn) have been quite vocal in arguing that Apple should expand its stock repurchasing program, Cook told the Journal that Apple wants to keep enough cash on hand for potential acquisitions. "We've looked at big companies," said Mr. Cook. "We have no problem spending 10 figures for the right company, for the right fit that's in the best interest of Apple in the long-term. None. Zero." Ten figures? Now we're talking about a billion dollar purchase, a staggering amount for a company that has never even spent $500 million on a lone acquisition. And combating fears that Apple's innovative days are a thing of the past, Cook emphasized that Apple remains a "growth company" and that "there will be new categories." Of course, Cook couldn't expand on that, but promised that Apple is "working on some really great stuff." Some other news to make headlines this afternoon included: Apple this week registered a number of new top-level domains, according to MacRumors. Apple's recent registrations are all photography-focused and include aperture.camera, apple.camera, iMovie.camera and a whole lot more. With so much information littering the Internet, it's sometimes hard to separate the wheat from the chaff. To that end, if you want a straightforward look at just what works to speed up your Mac and what doesn't, hop on over to Macworld for the full scoop. Oh Apple, will you ever get on the Bitcoin bandwagon? Not likely. Most recently, Apple removed Blockchain from the App Store even though it had already been in the store for two years. Bloomberg has the low-down on that over here. And in a blurb that might as well have come from the Onion, our old pal Woz told Wired that Apple should make an Android phone. Ummm, sure. And make sure to check out these features from TUAW in case you missed em' earlier: How to stretch your iPhone's battery as far as it can possibly go CARROT Fit uses the stick to whip you into shape Play to Cure: Genes in Space lets you fly spaceships and aid in cancer research at the same time
To date, Apple has spent $28 billion on stock buybacks and $15.8 billion on dividend payments
Apple last April announced plans to substantially increase its dividend and share-repurchasing program to US$100 billion. Apple's press release at the time explained that the company "expects to utilize a total of $100 billion of cash under the expanded program by the end of calendar 2015." Of that $100 billion figure, $60 billion will be allocated toward stock buybacks while $40 billion will be allocated toward dividend payments. With 2014 already underway, I thought it might be high time to check in on the program and see how far along Apple is toward reaching its $100 billion goal. Taking a look at Apple's recently filed Form 10-Q, we see that Apple, during its most recent quarter, utilized $5 billion to repurchase 9.5 million shares of common stock while paying out $2.7 billion in dividends to shareholders. Not too shabby for just three months' time, but if we take a step back and look at the program since it first started, the numbers become even more staggering. To date, Apple has repurchased about $28 billion worth of its own shares, leaving it with about $32 billion to spend on future stock buybacks. With respect to returning cash to shareholders, Apple since 2012 has paid out approximately $15.8 billion to shareholders via quarterly dividend payments. All told, Apple has already spent $45.2 billion as part of its capital program.
Apple files Preliminary Proxy Statement with SEC, urges shareholders to oppose Carl Icahn's share buyback proposal
Apple on Friday posted its Preliminary Proxy Statement with the SEC. The statement provides notice that Apple's annual shareholders meeting is scheduled to take place in 2014 on Friday, February 28. The meeting will see shareholders consider five proposals, one of which is activist investor Carl Icahn's proposal that Apple increase its stock buyback program by a minimum of US$50 billion. Apple, though, is of the position that shareholders should vote against Ichan's proposal. Apple, in its proxy statement, makes a point of noting that, while it opposes this specific proposal, it remains intent on returning profits to shareholders and is open to shareholder input in this regard. But rather than jumping on board with Icahn's proposal, Apple writes that it prefers to take a more measured approach that sees cash returned to shareholders "on an efficient and sustained basis." That said, Apple notes that it will continue to evaluate the state of its capital return program and will adjust it as need be in order to maximize the long-term interests of its shareholders. Apple further adds that because it operates in an extremely competitive and fast-moving industry, it's imperative that it maintains enough cash on hand to be able to take advantage of opportunities as they arise. The proxy statement reads in part: With breakthrough products and services such as the Mac, iPod, iPhone, iPad and App Store, the Company has created huge market opportunities, and the Board and management team believe the opportunities that lie ahead are just as exciting. Given such large and global markets, the Company competes with large companies around the world, many with their own significant technical capabilities and significant capital. This dynamic competitive landscape and the Company's rapid pace of innovation require unprecedented investment, flexibility and access to resources. Successfully innovating and executing against these large opportunities also requires careful stewardship by the Board and management team, and the Company's evaluation of capital return is conducted in the context of supporting the Company's continued business success and desire to deliver attractive returns to long-term shareholders If history is any indication, investors should be confident that Apple won't be shy about increasing its capital return program. If you recall, Apple first announced a quarterly dividend and share repurchase program of $45 billion in March of 2012 and subsequently more than doubled the program to $100 billion just one year later. That said, the proxy statement indicates that any changes to the program will be announced by March or April of 2014. As a point of interest, Apple notes that it has, to date, spent $23 billion on share buybacks and $43 billion in quarterly dividend payouts. Another shareholder proposal on the docket is whether or not Apple should create a new committee to keep tabs on human rights issues in Apple's supply chain. On this topic, Apple also urges shareholders to vote no. Apple relays that it's already doing a whole lot in this regard and that creating a new committee would be duplicative. Specifically, Apple emphasizes that it is "committed to the highest standards of social responsibility and human rights wherever we do business." The proxy statement reads in part: In addition to monitoring and driving improvements for workers in the supply chain, the Company places strong emphasis on education and worker empowerment initiatives. The Company has established a training program for new employees at the Company's suppliers to inform them of their individual rights, local laws and the Company's Supplier Code of Conduct. Millions of workers have participated in this training program. The Company also partners with educational institutions to offer free college-level courses to workers who make the Company's products. Hundreds of thousands of workers have attended these classes since 2008, and many have gone on to earn associate's degrees. The Company recently expanded this educational program to offer more opportunities for participants to work toward a bachelor's degree. ... In December 2013 the Company was awarded its 12th consecutive perfect rating from the Human Rights Campaign's annual Corporate Equality Index, which scores businesses based on lesbian, gay, bisexual and transgender workplace policies, and won the title of "Best Places to Work for LGBT Equality." The Board does not believe that establishing a committee is an effective way for the Company's practices and goals to continually evolve and improve in response to changing conditions. Instead, such an additional and redundant committee would distract the Board from its other responsibilities to the Company and its shareholders, while adding little value to the Company's existing commitment to human rights and social responsibility. The Company's existing governance framework has produced a strong commitment to human rights and progress that is evident in the Company's practices and policies.
33 years ago today, Apple launched its IPO
On December 12, 1980, Apple became a public company when it launched its IPO. Shares were initially priced at US$22, making a number of Apple employees, including a young Steve Jobs, instant millionaires. EDN reports: The shares sold out almost immediately and the IPO generated more capital than any IPO since Ford Motor Company in 1956. Instantly, about 300 millionaires, some 40 of which are Apple employees and investors, are created. That is more millionaires than any company in history had produced at that time. Steve Jobs, the largest shareholder, made $217 million dollars alone. Since then, shares of Apple have seen tremendous highs and lows. Shares of the company slightly eclipsed $700 back in September of 2012, a far cry from the sub-$5 levels the stock was at when Apple was on the brink of bankruptcy in 1997. Accounting for stock splits (there have been three in Apple's history), a lone share of Apple stock purchased in 1980 would today be worth $4,502. If one purchased $1,000 worth of Apple shares 33 years ago, that investment today would be worth $204,000. If one purchased $1,000 worth of Apple shares in June of 1997, when shares were trading as low as $3.56 a share, that investment would today be worth $632,000. One final factoid: Today, the biggest tech IPO of all time belongs to Facebook.
Why following Apple stock is not for the faint of heart
The unveiling of the iPhone 5s and 5c precipitated a nearly 51-point drop in shares of Apple, falling from US$505 to $454 in less than a week's time. The recent decline in Apple's share price serves as a prime example of why keeping a close eye on Apple's stock performance is often an exercise in confusion. The impetus behind the large sell-off of Apple shares was the higher than expected price tag associated with the iPhone 5c. Investors have been clamoring for a cheaper iPhone for years, viewing it as the only means for Apple to attain meaningful market share. Never mind, of course, the fact that Apple continues to command the majority of all profits in the smartphone market. Perfectly summing up what is often the nonsensical nature behind the ebb and flow of Apple's stock price, John Martellaro of The Mac Observer writes: We know the drill. Investment analysts, VCs and some media sites get a simple-minded idea. Apple should sell cheap iPhones to stop the infestation of cheap Android phones in emerging markets. That will surely allow Apple to squeeze out the bad guys and dominate the market... This is exactly what happens every year. A collective consensus regarding the best course of action for Apple emerges amongst analysts and tech pundits. When Apple chooses to go in a different direction, shares of Apple begin to plummet. The fundamental problem is that the same people who are so quick to opine on what Apple should do are the same people who are so self-assured in their wise counsel that they rarely, if ever, take a second to consider all of the ramifications that would manifest if Apple actually heeded their advice. Martellaro drives this point home: Apple, on the other hand, has its own set of problems. It must maintain the quality of its brand, and it must allow any iPhone to be a gateway to its own services, iTunes, iCloud, iBooks and so on. So just exactly how would Apple build a cheaper phone that nevertheless supports all the services Apple offers and also maintains that special customer craving for something really cool? Cheaper speakers and audio subsystem would denigrate iTunes. Crappier display? That would only disappoint. Omit certain communication bands? Then it wouldn't work worldwide seamlessly. Cheapen the construction so that when a customer drops it from a meter height, it explodes into 20 pieces? Not good. Smaller battery? Not with LTE you don't. It's not far-fetched to assume that shares of Apple would have fallen even if Apple priced the iPhone 5c much more cheaply. Inevitably, the new narrative would have been concern over Apple's margins. As it stands now, Apple's P/E ratio is below that of Dell's, which in essence sums up why making sense of Apple's share price is not for the faint of heart.
How iPhone launches affect the price of Apple stock
With Apple's iPhone event about a day away, we can expect new iPhones to hit store shelves in just a few weeks. While a few rumors have pointed to a September 20 launch date, we'll have to wait until tomorrow to know for certain. Either way, an iPhone launch is steadily approaching. That being the case, Chris Whitmore of Deutsche Bank recently issued a research note to clients tracking the performance of Apple shares in the wake of each iPhone launch. Whitmore found that shares of Apple increased following each iPhone launch, save for two. The two exceptions were the iPhone 3G -- which hit the market as the US was on the brink of an economic crisis -- and the iPhone 5. Keep in mind that Apple's stock price is influenced by a large number of factors. Consequently, investors shouldn't take the above chart to mean that shares of Apple will undoubtedly increase over the next few months. Indeed, anyone who has tracked shares of Apple knows that the company's stock price is subject to wild fluctuations that often defy logical explanation.
Icahn reportedly invested over $1.5 billion in Apple, stake in company still less than 1%
While initial reports indicated that billionaire investor Carl Icahn invested US$1 billion in Apple stock, the Wall Street Journal is now reporting that Icahn may have put more than $1.5 billion into Apple. Recall that shares of Apple skyrocketed by over 20 points yesterday following word of Icahn's huge investment. In two separate tweets sent out yesterday, Icahn exclaimed that shares of Apple were extremely undervalued while also mentioning that he had a conversation with Apple CEO Tim Cook about the potential for a larger stock buyback. "This is a no-brainer to go buy stock in a company that can go borrow" at a low rate, Mr. Icahn said in an interview. "Buy the company here and even without earnings growth, we think it ought to be worth $625. In case you're unfamiliar with Icahn, he has a well-deserved reputation as a corporate agitator, or activist investor if you're inclined to be politically correct. Specifically, Icahn has a track record of investing heavily in companies and leveraging his large ownership position to demand the change that he wants. While some folks have expressed concern about Icahn investing heavily in Apple and getting all chummy with Cook, there's really nothing to worry about. The Wall Street Journal notes: Wielding influence at Apple won't be easy, or inexpensive, given a stock market value that currently stands at close to $450 billion. At that capitalization, Mr. Icahn's stake would be less than 1 percent. Meanwhile, shares of Apple are still thriving in the wake of Icahn's investment. In early trading today, shares of Apple are up nearly 10 points as the stock inches closer to $500. Just three weeks ago, Apple shares were trading at $418. Per usual, it's a wild ride for Apple investors.
ITC's ban of certain Samsung devices boosts Apple market cap
Propelled by a favorable ITC ruling last Friday, shares of Apple shot up by US$12.91 on Monday, finishing the trading day at $467.36. Indeed, shares of Apple on Monday closed at their second highest level since February of 2013. Though the success of the iPhone is routinely measured against Android as a whole, the reality is that Samsung's fleet of Android phones remain Apple's biggest competition. To that end, investors reacted favorably to an ITC ruling this past Friday which handed down an import ban against certain Samsung smartphones found to infringe upon Apple patents. AppleInsider reports: Last Monday, news of the veto announced over the previous weekend sent Apple's stock up $6.91 or 1.49 percent, enough to raise Apple's market capitalization by just over $6.9 billion, a figure as large as Apple's most recently reported quarterly net income. Yesterday, Apple's market cap shot up by $11.7 billion. As for the Samsung import ban, it will go into effect in 60 days, barring a rare presidential veto. Apple, you may recall, was recently the recipient of a presidential veto with respect to an import ban that would have affected older-generation iPhones and iPads. The odds that Samsung will be as lucky appear to be extremely slim given the types of patents involved in the case. Remember that Samsung has routinely wielded standard essential patents against Apple whereas Apple has asserted patents that they are under no obligation to license to Samsung.
Numerous Apple executives sell millions of dollars' worth of shares
Last Friday we reported on a new SEC filing from Apple which relayed that Apple's Board of Directors tweaked Tim Cook's compensation package by adding a performance metric to his stock options. In addition, there were a number of other SEC filings from Apple which disclosed that a number of top executives sold millions of dollars' worth of Apple shares that had recently vested. Here's the breakdown: Apple CEO Tim Cook sold 41,391 shares for $17,115,178.50 Jeffrey Williams sold 38,181 shares for $15,787,843.50 Bob Mansfield sold 14,465 shares for $5,981,277.50 CFO Peter Oppenheimer sold 37,828 shares for $15,641,878 Phil Schiller sold 37,878 shares for $16,287,540 Bruce Sewell sold 37,828 shares for $15,641,878 Apple investors, however, shouldn't be worried that Apple's executive team is losing faith in the company. Keep in mind that the shares above were originally part of an allotment granted back in November 2011 with two vesting dates. The first one was on June 21, 2013 and the second is set for March 21, 2016. In other words, it's business as usual.
Apple's $17 billion bond deal allows it to avoid $9.2 billion tax hit
Yesterday I reported on the clever economics behind Apple's US$17 billion bond deal, specifically pointing out that the interest Apple will owe on each share it repurchases will be less than the dividend it would have otherwise been responsible for. Going a bit further, Businessweek did some calculations surrounding Apple's $17 billion bond deal and deduced that the company is avoiding a $9.2 billion tax hit by borrowing the money as opposed to using its own cash pile. Specifically, if Apple wanted to raise $17 billion by using its foreign stash of cash, it would have had to repatriate upwards of $26.15 billion. With a 35 percent corporate tax rate, Apple would have owed about $9.15 billion in taxes to Uncle Sam. Instead, Businessweek notes that Apple's annual interest payments on its issued bonds will only come out to about $308 million. And again, those payments are tax deductible. All in all, Apple's structured bond deal appears to be the result of some extremely shrewd financial planning.
The clever economics behind Apple's $17 billion bond offering
Apple on Tuesday raised $17 billion via a bond offering as part of its recently announced capital program which aims to return $100 billion to shareholders by the end of 2015. Apple's capital return program is comprised of two components: an increased quarterly dividend of $3.05 a share and a $55 billion stock repurchasing program. To help finance its new plan, Apple decided to issue debt, prompting many to wonder why the company didn't dip into its $145 million cash hoard. The answer is that $100 billion of Apple's cash lies overseas. Consequently, Apple would be subject to unfavorable income tax rates if it brought that cash back to the U.S. So instead, Apple chose to borrow money at extremely low rates to help fund its capital return program. The appeal is that the interest Apple will owe on its issued debt will be markedly lower than the income tax it'd be charged if it repatriated its foreign stockpile of cash. That certainly makes economic sense, but there's even more cleverness behind Apple's stock repurchasing plan and dividend increase than most people realize. Apple this week issued bonds with maturities of 3, 7, 10, and 30 years. While the rates on each type of note vary depending on the duration, the weighted average of Apple's interest rates comes out to about 1.85%, which if you do the math, amounts to approximately $314 million in interest payments. As Evan Niu of The Motley Fool points out, there are some interesting cost savings going on behind the scenes that may not be readily apparent at first glance. Here's a quick breakdown: Apple currently is trading in the $447 range. Using the 1.85% interest rate from above, we see Apple will be paying back about $8.26 in interest for each $447 share that it repurchases. At the same time, each share that Apple repurchases will no longer be a share it has to pay a third-party dividend on. Given Apple's new quarterly dividend of $3.05, each repurchased share of Apple will free up $12.20 (4 x $3.05) that Apple would otherwise be paying as an annual dividend. "It's like Apple is paying $8 to save $12," Niu writes. What's more, the $8/share Apple will repay as interest is completely tax deductible. In contrast, the $12.20 in annual dividend payments per share is not tax deductible. The Financial Times adds: Gerald Granovsky, an analyst at Moody's, said: "If you assume the statutory 35 per cent corporate tax rate, based on the data available and on a back of the envelope calculation, to generate in the US the equivalent of $17bn the company would need to repatriate $26bn. 'That is less attractive than paying the $300m in interest attached to this bond sale,' In essence, Apple is exchanging non-deductible and more expensive dividend payments for tax deductible interest payments while purchasing back shares at relatively low price-points. All the while, its billions of dollars in overseas cash remains untouched and untaxed.
Russia's richest man takes a $100 million interest in Apple
Over the past few weeks, shares of Apple have been trading at 52-week lows. Earlier this month, shares of Apple dipped below US$400 a share for the first time since 2011. Shockingly, Apple had a P/E ratio lower than Dell's for a few days last week. Over the past week, however, shares of Apple have rebounded nicely and are now trading in the $436 range. As for what's fueling the latest Apple rally, it's likely that the company's recently announced capital return program is being viewed rather favorably by investors. One man who's particularly bullish on Apple future prospects is Alisher Usmanov, Russia's wealthiest man. Usmanov has an estimated net worth of $19 billion and recently invested $100 million in Apple, believing strongly that the stock will rebound. "I believe in the future of this company even after Steve Jobs," Usmanov explained in an interview with Bloomberg. When the company lost $100 billion of its market value, it was a good time to buy its shares, as the capitalization should rebound." Usmanov highlighted that Apple's intention to purchase back $60 billion of its own shares and increase its quarterly dividend make Apple a "very promising investment." Previously, Usmanov enjoyed a 10-fold return on his 2009 investment in Facebook. Lastly, and for any soccer fans out there, Usmanov happens to hold a large stake in London's Arsenal Football Club.
Apple already taking steps to prepare for its upcoming debt sale
Apple last week announced that it would embark on a massive stock repurchasing plan whereby it will purchase US$60 billion worth of its own shares by the end of 2015. In a press release on the matter, Apple called it the "largest single share repurchase authorization in history." What's more, the company also announced a 15 percent increase to its quarterly dividend, upping the payout from $2.65 to $3.05 per share. Taken together, Apple's capital return program is designed to return a total of $100 billion to shareholders. That's a lot of dough, but with upwards of $145 billion in the bank, there's no denying that Apple has the cash to make that happen. There's just one slight problem -- the bulk of Apple's cash is overseas and would be subject to a corporate income tax rate of 35 percent should Apple try and bring it back to the US. That being the case, Apple has opted to keep its cash overseas and fund the bulk of its capital return program via the issuance of debt. Now, just one week after making its initial announcement, Reuters is reporting that Apple has already begun taking steps to secure funding for its capital return program, including contacting both Goldman Sachs and Deutsche Bank and filing the requisite SEC paperwork. The only major tech company without a penny of debt on its books, Apple stunned the markets last week by announcing it could sell debt for the first time to help fund a $100 billion capital return program for shareholders. Any bond offer from the makers of the iconic iPhone and iPad would be highly sought after by investors, and it is believed the company could raise funds at a cheaper rate than even Triple A-rated Microsoft. That Apple would turn to the debt market to help fund its $100 billion expenditure isn't all that surprising. Apple has long lobbied for a tax holiday wherein it would be able to repatriate its cash hoard to the United States at a much lower tax rate. Besides, if Apple can issue debt on favorable terms, why not take advantage of it? Fortune adds: Apple's decision to tap the debt market comes at a time when borrowing is cheap. The Federal Reserve is holding interest rates near record lows and the average yield on investment grade US corporate debt is around 2.6 percent, according to RBS credit strategist Edward Marrinan, who said companies with a AA-rating like Apple's can borrow at a rate of less than 2 percent. As for Apple's increased dividend, the company will next issue a dividend payout on May 16.
