Apple Inc. (NASDAQ:AAPL) will not be affected much by the closing of the “double Irish” tax loophole, which allowed big companies, including Apple, to enjoy a substantially low statutory tax rate than would have been the case otherwise. In a report dated Oct. 14, 2014, Barclays analysts Ben A. Reitzes and Ryan Jones note a “neutral” impact of the decision on Apple shareholders.
Neutral impact on investors
The law will be implemented in January, but the companies that are currently using this tax law will not be required to follow it until 2020. Investors will be relieved, as it will not majorly affect the long-term earning power of the company.
“We believe the outcome is relatively neutral for Apple shareholders, with temporary relief balanced against slightly lower long-term earnings power,” said analysts.
If Apple is charged a 12.5% Irish statutory tax rate on foreign pre-tax earnings, then the company’s earnings are at a risk of dropping by about 7%. However, analysts believe that a tax is probably a more minor issue than it seems. The company is safe, backed by a margin surge due to the mix shift toward the iPhone 6 Plus form factor and the Apple Watch.
Apple investors more focused on upcoming event
The analysts further noted that they will keep an eye on any change in the European Union’s decision of imposing a fine on Apple and other companies that have apparently broken the EU tax rules. As of now, investors are more concerned about the Apple event to be held in Cupertino this week.
Apple is expected to unveil new iPads with fingerprint sensors, new iMacs, Mac OS Yosemite and probably some details on the Apple TV, the Apple Watch ecosystem and HomeKit. The analysts believe the stage is good enough for the company to introduce Apple Pay along with clear details on the service.
Also new iPhones will be launched in China on Oct. 17, and they are “encouraged” with the demand in the region. The analysts believe Apple could outperform “in a very tough tape” backed by “margin upside, large stock repurchases and a growing dividend.”
Barclays analysts have maintained their Overweight rating on Apple with a price target of $116.