Apple Inc. (NASDAQ:AAPL) and numerous other technology companies could greatly benefit from an overhaul of the corporate tax code, in the view of analysts at RBC Capital Markets. Shareholders of these companies could also benefit greatly if the overhaul includes changes to repatriation of capital, particularly if that capital is used for share repurchases.
Apple and the potential for tax repatriation
RBC Capital analysts Amit Daryanani, Mitch Stevens and Karl Ackerman issued a report to investors this week highlighting possible beneficiaries of tax repatriation if the U.S. government decides to overhaul the tax code. They cite “recent renewed interest in overhauling the corporate tax code.” That interest includes allowing companies like Apple Inc. (NASDAQ:AAPL) to repatriate some of their capital at a reduced tax rate. Currently the corporate tax rate is 35 percent or greater.
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The analysts believe companies with more than 70 percent per share of their cash overseas can benefit greatly from a one-time cash transfer. They see the potential for dividends and share buybacks to increase if U.S. officials decide to make capital repatriation look more attractive for these companies. Apple Inc. (NASDAQ:AAPL) in particular has about $100 per share in cash overseas.
The analysts say that if Apple Inc. (NASDAQ:AAPL) is able to make a one-time repatriation transfer of its cash from overseas, the company could increase its dividend or use the cash to make a strategic acquisition without having to raise debt.
Another possibility for Apple Inc. (NASDAQ:AAPL) is to use the cash to increase its share buyback plan, and we already know from the company’s most recent earnings report that it is interested in buying back its shares, possibly sooner rather than later. The company did raise debt earlier this year to increase capital return to shareholders, but if it had access to its offshore cash, the possibilities for what it could do are much greater.
Adam Levine-Weinberg, contributor to Fortune’s Philip Elmer-Dewitt calculated that the company spent about $16 billion buying back its own shares in the June quarter.
The real question would be whether Apple would indeed speed up its share buyback plan if it’s allowed to repatriate its cash at a lower rate. If the company knows that there are future products ahead which will serve as major catalysts for its stock price in the next year or two, buying back shares now at a lower price would make more sense.