RBC sees room for Apple to take on another $55 billion in debt

“The Street continues to be preoccupied with Carl Icahn’s announcement Tuesday he took a ‘large stake’ in the shares and urged CEO Tim Cook to expand the company’s already record share buyback program,” Tiernan Ray reports for Barron’s.

“In contrast to some skeptical notes from Apple bulls yesterday, RBC Capital Markets’ Amit Daryanani today writes that he sees ‘plenty of potential’ for an expanded buyback program given its ratio of debt/ebitda is abnormally low at 0.3 versus tech industry average of 1.8,” Ray reports. “Daryanani, reiterating an Outperform rating, raises his price target to $525 from $475, [writes] that Apple could add another $55 billion in debt and materially boost earnings.”

Read more in the full article here.

25 Comments

  1. WTF! STFU! Apple needs to take a loan to pay these AHOLES money?? No effin way! I am a shareholder and I don’t want the Apple to take more loan to pay things that can be solved later.

    1. As eloquent as you are capable of stating your point of view, you also show your deep knowledge of high finances and what will benefit the small shareholder. Both your shares will be worth more when Apple buys back shares.

      1. This whole buy-back fiasco is not about the small shareholder. The small shareholder who typically invests (holds) for periods of many months to many years will get their return on Apple as new products are released and Apple’s stock price goes up.

        This is about greedy, large investors who want Apple to *announce* a large buy back. The stock will — for a short period — go up dramatically. Once it is significantly up in the short term these large investors will cash out. The stock will then drop back down. These guys don’t care about the long term buyback. They want the *announcement* and the bump that will go with it.

        It’s just like the push this past spring. No long term investor has made any significant earnings on AAPL solely due to those announcements. just notice the dramatic drop the day after Apple paid its dividend. That’s not the long term, small investor cashing out. That’s the big guys saying, “I got my dividends. Time to move on.”

        Anyone who thinks Carl Icahn’s involvement is pro small investor is extremely naive at best and hopelessly foolish at worst.

  2. Steve Jobs Apple is dead people. It is just another big company pandering to the Wall Street folks who give not a damn about anything other than stripping it’s carcass for every cent they can milk out of it.

  3. These god-damn neanderthal imbecile sewer slim bandwagon AAPL anal-cysts need to be taken to the gallows and hung.

    To the all the AAPL anal-cysts who are reading MDN: SHUT THE F UP.

  4. Right, as if debt solves anything.

    I understand the tricky financing involved. Problem is, Apple isn’t in business to cowtow to Wall Street’s greed. That is not the purpose of a company — at least, it wasn’t in the past. I fear that the days when a higher purpose was foremost have disappeared.

    In playing stock price manipulation games, Cook and Co are just as evil as the rest of the self-serving corporate executives on the planet.

  5. Aapl borrowed $17b. Interest @3% less 25% tax deduction means it cost them $95m in one quarter if we assume tax rate is 25%. But they saved $110m in dividend payment in last quarter. So by borrowing and buying back shares if they saved $15m in one quarter then why not? They should borrow $100b and get rid off short term trader because they will be saving by buying back shares and other advantage is eps will go up like this writer mentioned.

    1. This is an overly simplistic analysis. Money paid to bond holders is not the same as money paid to shareholders. In both cases the money starts as a shareholder asset. But in the former case the money is paid out as an expense of borrowing while in the latter case the money is transferred to the shareholder (taxable, of course).

      The Apple stock buy back is intended to eliminate the share dilution resulting from Apple’s employee compensation plans. It may even decrease the number of shares of common stock outstanding, which would tend to increase earnings per share and the stock price (assuming the the P/E multiple did not decrease). But stock buy backs using borrowed money should be approached carefully. In Apple’s case, the move was brilliantly timed and executed because Apple borrowed the money at very low interest rates and was able to repurchase $B worth of shares at relatively low prices. Borrowing also enabled Apple to avoid taxation from repatriating foreign profits. But that does not mean that Apple should automatically borrow another $55B to increase the buy back. More is not always better.

      Theoretically, dividend payments are value neutral because the stock price should adjust appropriately to reflect the disbursement of assets from the company. In many cases, however, a high dividend is seen as a sign of confidence and corporate earnings strength. It also tends to attract income investors who are looking for a regular cash stream. Increased demand for the stock can result in increases in the share price.

      This is far too complex of an issue to cover in detail. But it is not a simple matter of interest paid versus dividends “saved” unless you are strictly interested in retained earnings. And, for an Apple investor, that would not be a laudable goal for the company. It already retains a massive amount of earnings.

      1. Hi king me, you are spot on but I still prefer company reduce the shares instead on increasing dividend. If company feels that there shares are cheap like MR BUFFET did for BRK then why not? If shares are at about 7 to 8 PE then it is advisable to buyback the shares rather then increasing dividend. Also don’t forget there free cash flow is lot higher then dividend payment. They are not even paying 30% of their free cash flow.

        1. Many people do this and it just drives me nuts… There and theirs.
          There shares are cheap. Their shares are cheap.
          Also don’t forget there free cash flow… Also don’t forget their free cash flow. I’m sorry for this, but it just drives me crazy when smart people use the word there instead of their.

    2. And you assume Apple is going to pay 100% of that $17 Billion back within one calendar year so that the total outlay is just 3% (plus huge fees to Wall Street, of course)?

      You, and the other idiotic proponents of this borrowing by Apple, seem to think that Apple is borrowing money for the long term and having to pay 3% TOTAL over a multi year debt. That’s now how it works. The way it is structured some of that $17 billion in debt is at a floating rate and some is at a fixed rate — some as low as 3%. But NOTE WELL, that is the *RATE*. Some of that debt is set for 30 years. The 30 year debt is at an ANNUAL RATE of 3.883%. Apple is not paying a flat 3% on the borrowed money! Yes, the aggregate RATE of all loans over all terms is about 3%. However, that is a RATE not a flat percentage.

      AND Greedy Wall Street is not giving Apple its best rates! Apple isn’t even getting a AAA bond rating! This is even though Apple has a better debt to earnings ratio than *any* other company in Apple’s line of business — and better than the vast majority of any of the large debtors worldwide. Again, this is just Wall Street greed. Stick it to Apple while you can, while they have a large cash horde stuck overseas.

  6. Why don’t they ask for anything from Amazon or Google? Those companies don’t really seem to have much of an edge over Apple so why are they getting a free pass. It’s like Apple has to keep paying for a decent valuation. Those funds are acting like they’re in the protection racket. “Pay up and we’ll let you do business without trouble.” It really just doesn’t seem fair.

  7. While borrowing makes sense from both business and tax standpoints (the interest is less than the tax liability of repatriating overseas funds, and they retire shares cutting the dividend expenses), I’m not surprised that Wall Street wants more. Apple management caved in to Wall Street when they announced the increased dividend and bind offering just a few months ago. Wall Street are like drug addicts, they can’t get enough. When they bleed one company, they’ll just move on to the next in line.

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