Week Ending 12/14/12: $509.79 Dec 15, 2012 10:50:51 GMT -5
Post by rickag on Dec 15, 2012 10:50:51 GMT -5
IT MAY BE TIME FOR APPLE to finally get serious about share repurchases. With its shares off more than 25% from their September peak of $702 to $509 on Friday's close after a 23-point drop in the week, Apple trades for just 10 times projected consensus earnings of $49 a share in its current fiscal year, ending in September. Its price/earnings ratio is just eight when the company's $128 a share in cash is stripped away.
The selloff last week came as several analysts cut earnings estimates for the current fiscal year amid reduced expectations for iPhone and iPad sales. UBS's Steve Milunovich cut his 2013 estimate to $47 a share from $51.50 Friday and reduced his price target to a still-lofty $700 from $780.
Apple earlier this year initiated a $10.60 annual dividend and said it would buy back $10 billion of stock over three years. That's a modest repurchase program given Apple's enormous cash position and its annual free cash flow of over $40 billion. Apple ought to consider a large one-time share buyback of up to $50 billion, financed by onshore cash and borrowings.
The company probably could borrow $25 billion or more of intermediate-term debt at around 2%. One option would be to buy back $50 billion at once through a tender offer, at say, $575 a share. That would retire about 10% of its stock and be highly accretive to earnings. Apple historically has been very conservative financially, but CEO Tim Cook and the board ought to reconsider.
As much as I'm hurting in my options account I want Apple to do what is best for Apple.
I see minimal gain for Apple for a large buy back. This would appease some sharholders and would certainly make some Apple employees holding options given them by the company, but what is the upside for Apple as a corporation.
The biggest downside for upper management if they don't do a large buy back, would be the sharholders voting them out, which I would be shocked if this happened.
Am I completely off base here??
edited for clarity.