Bernstein analyst Sacconaghi: $50-$100 billion of debt might be ‘attractive option’ for Apple

“Bernstein Research’s Toni Sacconaghi today reiterates an Outperform rating on Apple (AAPL) shares and a $600 price target, and muses on whether the company should perhaps issue $50 billion to $100 billion worth of debt if it plans to return cash to shareholders through on ongoing dividend,” Tiernan Ray reports for Barron’s.

If Apple were to choose to pay a 40% payout, $50B in debt would enable the company to support such a dividend for nearly 20 years, giving it considerable time to wait for a change in tax law that would enable more favorable access to offshore cash or cash generated offshore. Moreover, we also believe that accessing inexpensive financing at historically low rates makes eminent sense for financial flexibility, particularly since Apple holds no debt today. – Bernstein Research analyst Toni Sacconaghi

Ray reports, “Sacconaghi notes $50 billion would be the largest ever single debt raise, with close approximations being Roche’s $33 billion issue in 2009.”

Read more in the full article here.

MacDailyNews Take: Oh, for the love of Jobs! Toni ought to get to work on his price target before it looks even more ridiculously low and leave the cash management to the professionals at Apple Inc.

Go look for your missing iPhones, Toni.


      1. What Toni Sacconaghi is telling Apple to do will only benefit Wall Street banks and their sycophants. What had brought troubles to many companies in the past was to heed Wall Street’s advice to load on debts. Apple has 100B in cash and it doesn’t need to be greedy and grab easy cash from other people’s money through cheap interest rates. This is what was wrong with America’s obsession with easy solution and not through hard work and efforts.

        Remember Wall Street banks’ advice to many homeowners to mortgage on their existing properties to buy more properties? This is akin to what Toni Sacconaghi is advising Apple to do. Look what greed had done to many homeowners: they lost their homes. Apple don’t need convoluted schemes of Wall Street on how to grow rich. Apple has gotten to where it is today by not heeding Wall Street’s advice and it would continue to prosper by sticking to this policy.

  1. Apple, please ignore all the idiots on Wall Street and keep focusing on making better products for your customers.

    HP did a lot of things that were applauded by Wall Street and see where they are now

  2. Apple has what? $97 Billion in cash? How much more flexible can you get. This guy thinks like he’s dealing with a company that needs money. What an idiot.

    1. I think you missed the point. He’s talking about giving away roughly 1/3 of the cash as dividends. That would be all of the money it has in the US.

      He’s suggesting that Apple could do this and then keep the foreign money where it is until it can be repatriated at more favorable tax rates.

      Meanwhile, to maintain operations and flexibility, Apple could take on $50 Billion in domestic debt to offset the money it paid it dividends.

      It wouldn’t surprise me to see a company do something like this…in fact many companies do. Heck, Microsoft did this not to long ago. While convoluted, it does make financial sense…hate the game, not the players and all that, but it doesn’t “feel” very Apple-like.

  3. I’m no economist but I’ve seen situations where what seems to be a convoluted, makes-no-sense move financially actually turns out to be a wise move, thanks to equally convoluted business & tax law. He just may have a very valid suggestion.

    1. Toni Sacconaghi is normally an idiot when he talks about Apple. But here’s the thing, people buy a growth stock, which by definition isn’t making a lot of money, based on future prospects because the relative price is low compared to its potential, even if the P/E is 40. Apple doesn’t fit that model anymore. It’s making money faster than it can be counted. It may double its price another time or two, but it will NOT double its price 6 times in the foreseeable future, as it has since 2003. It’s P/E looks like an income stock and so do its profits. It’s time for Apple to pay a regular dividend to all of those people who bought 10 years ago and held, knowing that huge profits were coming. Sure the day traders and speculators would love to see Apple retain its volatility, but as a long term investor in the company I’d rather see it declare a dividend, appreciate another 20% in share price immediately, and then settle down around the $800 to $1000 range.

    1. That is untrue. There are many cases in which the intelligent use of debt results in growth and development that would otherwise be difficult or impossible to achieve.

      If you said that “irresponsible debt is never good,” then I would agree wholeheartedly.

      1. Debt is good to use for things that will last long after the payments.

        For individuals: mortgage on a home, a loan on a car you will keep.

        For government: infrastructure

        1. Wealthy people frequently utilize debt when it makes sense to do so. In fact, the ready access to low-cost debt is one of the significant advantages enjoyed by the wealthy.

          I do not agree with Toni’s suggestion for Apple to borrow money to pay dividends. But I don’t agree with you, either.

    2. silverhawk1, you’re absolutely correct. The best feeling there is, is to own a home outright, own your vehicles outright, and owe no money to anyone. Now if we could get the gummint off our backs with their burdensome taxes – confiscated to pay for lay-abouts.

      Bucket List for 2012

      Obama: Gone!
      Borders: Closed!
      Congress: Obey its own laws
      Language: English only
      Culture: Constitution, and the Bill of Rights!
      Drug Free: Mandatory Drug Screening before Welfare!
      NO freebies to: Non-Citizens!

        1. I needed to escape from socialist England, so, I applied for a visa in 1953, was granted one, I paid my $10 and they let me stay. I then went on to live ‘the Old American Dream’: which, in the past three years, has been systematically plundered and dragged apart.

          1. Those doing the plundering are not your neighbors living on $300 per month general assistance. The plunderers are the ones living in those gated communities, deriving their incomes from DoD contracts to deliver $5 hot dogs and $15 per gallon gasoline to our troops in South Krapistan, or wherever else the US military and the government can somehow justify making it’s presence known. We’ve spent a trillion dollars in Iraq and Afghanistan over the last 10 years. We’d have been better served if we’d given it to people on welfare and illegal aliens. At least they would spend it here in our own economy instead of squirreling it away offshore.

            1. When do you stop people coming iligely zeke. When all the Somalies and Ethiopians get here (I like Somalies and Ethiopians they are hard workers). What about the the Indians and the Pakastanies? They deserve a better life to. I quess all the eligal immigration will end when we are poorer than the countrys they are coming from.

  4. I do not believe that Apple should borrow to support a dividend. However, in the general case, debt is a tool that can be beneficial, if handled properly. Having a lot of your own cash on hand is a very good thing. Having access to someone else’s cash at a very low interest rate can be an even better thing, in some cases. If Apple needs a lot of cash to use in the U.S. (and not for a dividend), then it might actually make sense for Apple to borrow rather than pay the taxes that would result from repatriating profits from international operations.

    1. The flaw in your statement is that the institutions Apple would be borrowing money from have less money than Apple does.

      Apple doesn’t need access to borrowed cash at low interest rates when it has access to its own cash for free.

      1. You really don’t understand economics, do you? You are not alone in this forum, judging by a number of the comments. First of all, Apple does not “access its own cash for free.” That cash is invested in some manner, so there is an opportunity cost associated with the lost income from those investments. There could also be an exit charge related to getting out of some investments early. If Apple were able to earn more from its investments than it would pay for borrowing money, then it would be foolish to spend its own resources. In addition, Apple can write off the interest on the loans against its revenues.

        Apple is, indeed, a unique case. But I would not go so far as to say that there would never be an instance in which it might benefit Apple to borrow cash.

      2. And that “flaw” to which to are referring is completely fictitious. The financial system in the U.S. has far more money available to make loans than Apple has in cash and securities. The world financial markets has even bigger pockets. In fact, the problem that started in 2008 was that the formerly free-wheeling banking institutions suddenly decided to become risk-a-phobic and mostly sat on the cash. That’s what nailed small businesses, and the whole situation had its roots…well, we won’t get into that.

        The terrible thing is that while banks will only pay a fraction of a percent to borrow money, they are happy to loan it out via revolving credit at 10%, 15%, 20%, or even 25+%. That kind of spread is disgusting.

  5. Yes, bankers always think it is “attractive” to take out a loan so that you can have “tax advantages”.

    Those “tax advantages” only come into play when you borrow money, which means you’re paying interest on it.

    Apple is much, much smarter than that — nothing works as well as cash. Just ask Apple’s suppliers.

  6. There keeps being this silliness about Apple paying taxes to repatriate international profits. The fact is that Apple will NEVER bring those funds into the U.S. so long as it will be heavily taxed by doing so. It will simply keep that cash offshore and use it to build new Apple stores, make payments to Foxconn, buy Israeli companies, etc. There’s no need to bring it back to the U.S. just to pay taxes or keep it in the U.S.

    Plus, it can be very difficult doing international business from U.S. banks due to federal regulations placed on U.S. banks since 9/11. Many international businesses and banks won’t even work with U.S. based banks, even the largest ones. Therefore it is actually financially beneficial for Apple to keep a large part of its cash offshore.

  7. That is what I like of the Analyst, they always know what to do whit the money they didn’t make.
    As long as it is some body’s else money, they know what to do. I bet they don’t have such a big planes for their own money.

  8. 1) I would like Apple to pay dividends.
    Yes apple’s growth is better than the paltry dividends given by other companies. But even a small dividend will increase the market for apple shares as many dividend mutual funds etc cannot buy aapl (I believe some of these funds are asking Cook to do this, they have already exhausted their non dividend fund allocations for aapl). More buyers better for aapl price, better stability (dividend owners usually don’t buy and dump like manipulators).

    2) don’t want dividends to jeopardize Apple’s ‘war-chest’. Use only cash amounts not needed for strategic aims like buying companies, bulk purchases etc.

    3) although this debt thing makes traditional business sense as Apple doesn’t have to take it’s overseas cash back and pay taxes (two thirds of apple’s profits is from overseas sales) I’m leery of borrowing from banks.

    For 50 b the banks will have CONDITIONS. Do we want bank managers (like Goldman Sachs) overseeing Apple’s decisions? Nope. (remember Donald Trump years ago? how the banks whom owed billions had tied his hands? Bank managers were controlling his moves – they even controlled his personal spending ‘allowance’ for meals, entertainment etc! . Finally he had to scream at them to let him do his ‘thing’ otherwise they would never see their loans again. Yeah, donald’s example is extreme as he was defaulting but still I don’t want bank managers checking Apple’s decisions. )

    4) Finally: for now i trust Cook. He’ll make the right decisions. Give him TIME to sort everything out.

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