Apple Inc. (AAPL) Cash Distribution Plan In Focus

Apple Inc. (AAPL) Cash Distribution Plan In Focus
Following Greenlight’s comments regarding Apple Inc. (NASDAQ:AAPL)’s cash balance, the company issued a press release which gives more insight into the company’s decision-making process regarding its allocation of cash. The company’s tone with regard to cash distribution was increasingly positive and analysts from Credit Suisse note this could result in a number of outcomes including:

1) Accelerated share buyback.

2) A special dividend.

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3) Preferred stock issuance.

Based on anaysts’ detailed analysis which takes in to account the different FCF dynamics onshore and offshore, the research firm see Apple Inc. (NASDAQ:AAPL)’s current distribution plans of $45bn over three years significantly understating their ability to return cash to shareholders. Their group FCF estimates stand at $53bn and $60bn over CY13/14, and the firm expect the company to generate onshore FCF of ~$60bn through 2015. This, coupled, the existing onshore cash balance of $43bn, provides scope for at least an additional $20bn in distribution while retaining $33bn onshore. Credit Suisse note that their analysis completely discounts the offshore cash balance of $94bn as of 4Q12.

Fundamentally, with a structural advantage in the compute market, Apple Inc. (NASDAQ:AAPL) should deliver robust EPS growth of 16%. First, the research firm see continued growth in the high-end of the smartphone market. Second, they see carrier expansion growing annual units by 65mn. Third, while the innovation gap at the high-end has narrowed, Apple Inc. (NASDAQ:AAPL) sustains a compute advantage. Analysts believe Apple Inc. (NASDAQ:AAPL) captured 56% of the tablet market and they increasingly see the company sustaining a ~50% share in the segment given 3 factors: (1) a superior compute experience/ecosystem across smartphones, tablets and PC’s; (2) a tablet product portfolio that addresses all price tiers; (3) structurally higher GMs than peers.

Valuation:

Apple Inc. (NASDAQ:AAPL) currently trades on 8x firm’s calendar 2014 P/E, which is inexpensive given over 16% earnings growth between CY12–CY14 and net cashper share of $145. Credit Suisse’s Price Target of $600, is based on a multiple of 10x applied to  their taxed CY14 operating EPS of $59.