The 2018 Apple shareholder meeting is scheduled for tomorrow, and investors and analysts will be looking for greater clarity on a variety of issues. Analysts generally don’t expect an announcement about capital return until the next earnings release in April, but the company’s management might drop a few clues. Meanwhile, Apple stock headed higher right out of the gate on Monday morning, dragging the broader stock market indexes skyward along with it.
The company made a big show with a press release announcing its plans to invest in the U.S. economy recently, although many analysts found the announcement lacking in any real details as far as what it plans to do with the cash it will repatriate. The 2018 Apple shareholder meeting this week provides another venue for capital-related announcements.
GBH Insights analyst Daniel Ives offered some insight on what to expect from the shareholder meeting. He does feel that Apple management faces “a myriad of challenges” right now as demand for the iPhone X disappointed and the HomePod speaker was delayed beyond the holiday season. Because of all these product-related challenges, Apple stock remained pressured this year, but Ives still feels it offers a compelling valuation, especially in light of the “massive cash outlay on the horizon for investors.”
Despite the turbulence in Apple stock this year, he sees it as compelling because the company is expected to release three new iPhones over the next nine months as 350 million iPhones become eligible for upgrades. However, he also explained that Apple stock is transitioning from a growth name to a value stock and highlighted the company’s cash stash as a key area of focus.
The iPhone maker is expected to repatriate more than $200 billion in cash, so investors who attend the 2018 Apple shareholder meeting tomorrow will likely be listening for any hints about plans for that cash, especially in terms of timing.
Ives continues to expect the company to announce a $300 billion share repurchase program and a dividend increase of 10% to 15% sometime in April. He also expects a special $15 billion cash dividend aimed at deploying all of the cash the company repatriates.
Ives expects to hear more about the capital return plan at the 2018 Apple shareholder meeting this week. He expects that capital return program, plus the “attractive risk/reward” and “strong fundamental picture” over the next 12 or 18 months, to push Apple stock back over $180 by the end of this year. He maintains his Highly Attractive rating and $205 price target for Apple stock.
One big question mark is acquisitions, and the suggestions about potential targets will certainly keep coming. Apple tends to prefer deals that are valued at less than $1 billion, but with so much cash piled up at home, analysts are suggesting that larger acquisitions might be possible. Citi analysts said recently that they think the company could even buy Netflix, and another name we’ve heard floated has been Tesla. The problem with both of these companies, however, is that their valuations place them far outside the value of the typical Apple target.
However, Goldman Sachs analyst Rod Hall said in a note last week that the tax reform bill could be the ingredient that’s needed to spur Apple into making an even bigger acquisition. He also warned that a major acquisition might be so expensive or dilute Apple stock so much that it could pressure the shares. So while the iPhone maker might be able to afford to shell out $110 billion for Netflix, investors might not be pleased with the financial implications of the transactions.
Either way, management probably won’t have much to say at the 2018 Apple shareholder meeting regarding what types of acquisition targets they might be considering. They tend to be pretty tight-lipped about such matters, sometimes even after a deal is done.
Apple stock surged by about 4% in intraday trading on Monday, climbing as high as $162.99 per share.