Apple could be primed for profit explosion under President Trump’s big tax cut

“Apple CEO Tim Cook should take a few minutes out of his day on Wednesday and picture the profits that could be about to rain down thanks to President Trump’s tax proposal,” Brian Sozzi reports for TheStreet.

Our analysis shows a reduction in the U.S. tax rate will drive a 6% benefit to EPS while a cash repatriation holiday and share buyback could drive an incremental 10% EPS benefit (assuming 25% of repatriated cash used for stock buyback),” Citi analysts wrote on the impact on Apple from Trump slashing the corporate tax rate to 15% from 35%. We see Apple as a significant beneficiary of Trump tax reforms. — Citigroup analysts Jim Suva and Asiya Merchant

“Apple could be staring down the barrel of a tax-cut-driven profit explosion,” Sozzi reports. “Playing around with Citi’s numbers and doing some analysis, Trump’s tax proposal — as it will be laid out on Wednesday — could boost Apple’s stock price by at least another 32%. If the iPhone 8 supercycle happens, that could make the gain even greater.”

Read more in the full article here.

MacDailyNews Take: Oh, okay, we’ll take another another 32% or more!

37 Comments

    1. They are waiting for the new Mac Pros to arrive before building the Wall.

      The engineers need more power for the design specifications and are stuck at the moment.

      But, don’t worry, as soon as those Mac Pros begin arriving they are going to get right on building that wall, or maybe a little bit after that, but certainly before the end of the first term if all the design specifications get worked out. No matter what, “it’s going to be a GREAT WALL. A BEAUTIFUL WALL, THE BIGGEST WALL EVER IN THE HISTORY OF MANKIND! NO OTHER WALL ANYWHERE WILL BE AS LONG OR AS TALL! AND MEXICO IS GOING TO PAY FOR IT!”

      1. Thanks for having observed that TowerTone, I’m only give some attention to that nation’s actions on the global stage but in this case since it involves Apple, I’m a bit curious.

    2. With all of the jumping around by the Administration, it can be difficult to tell. My guess is that action on taxation will occur before anything else.The status of the healthcare reform effort is uncertain. My guess is that the wall, as originally envisioned and described by Trump will never be built. Of course, Trump will retroactively change his vision of a wall as “enhanced security measures” and once again claim that he “won.” He will they hold a rally where ~25K supporters reinforce his ego and his belief that the world approves of his agenda, whatever it happens to be at the moment.

      Don’t bother trying to follow the internal machinations, RW. Fact is stranger than fiction…

      1. As if Obama didn’t hold rallies where supporters cheered his “If you like your doctor, you can keep your doctor” lies as if he were the messiah.

  1. That’s hilarious. Imagine, Apple’s bottom line improved primarily as a result of Trump-inspired policy. I wonder if Tim Cook will exercise his moral indignation and opt out to show his resistance toward the current president. Or will he make bank while hypocritically condemning Trump and protest Trump’s legitimacy?

    1. Why should TC or Apple care one way or another apart from maximising any opportunity offered or minimising negative effects? Business is business. A fact lost on most folk here…clueless couch potatoes one and all.

      1. Because Apple profiting from laws from a government that they oppose and object is blatant hypocrisy. Kinda difficult for Apple to take the “ethical” high road while also profiting from a government they fundamentally oppose.

        You may be able to justify Apple’s disingenuous behavior, but others cannot.

          1. Why don’t you “simply” explain my reasoning, turd? C’mon, a person with such a high intellect as you should be able to offer a clear analysis. But you won’t because you can’t. You’re just a sniveling, troll.

      2. “Business is business. A fact lost on most folk here…”

        Exactly. Witness all the indignant posts now and then about how Apple is STILL using Samsung to manufacture iPhone components, and how can Tim still be sucking up to them over half a decade later.

    2. How can you possibly claim that it would be hypocritical for Apple to condemn various positions espoused by Trump while profiting from actions taken by the Trump Administration and Congress?

      Apple is bound to follow federal laws and also has a fiduciary responsibility to its shareholders, the owners of the corporation. So, Apple may profit from actions taken by the federal government even while it disagrees with some of the views of the Administration. Similarly, Apple is doing business in China even though the human rights situation in that country is substandard.

      1. It’s not hypocrisy at all, this is a long standing policy which Apple has pushed for many years with governments on both sides. Apple has frequently stated that the tax system needs to be reformed to facilitate repatriation of overseas earnings at a reasonable rate.

        For instance, in 2013, Tim Cook went before the Senate Permanent Subcommittee on Investigations and argued for a “reasonable tax on foreign earnings that allows free movement of capital back to the US.”

        1. Apple pays a 31% rate on its US income, which results in billions of US tax. It pays very little foreign tax on its foreign income thanks to its HQ in Ireland, and EU reciprocity. It books a lot of US tax on its foreign income, pending repatriation. In fact, Apple, compared to its tech peers, books a higher percentage of US tax on its foreign income. That’s why its Total net effective tax rate is around 26%. All of its tech peers have a lower net effective tax rate.

          The American people are not being taken advantage of. US income is being taxed at a net effective rate of 31%, and foreign-earned income is being booked at a far higher rate than any of Apple’s peers. Just look at the effective tax rates of the big tech companies.

            1. Anyone with money invested should read the 10K and 10Qs of the companies they’re invested in. The info is right there.

              What you don’t realize that the less Apple pays foreign gov’ts, the more they owe the US gov’t. Companies get a CREDIT for foreign taxes paid. So, by paying less overseas, Apple owes more to the US Treasury, which is why they’ve accounted for so much US tax. If you people would try to understand what is actually happening, you wouldn’t be shouting at Apple, but the other companies which are all doing far worse at paying US tax or booking US taxes. All you do is show your ignorance since you obviously haven’t done any research.

      1. That’s a list of companies with “untaxed profits”, but I think it’s a bad label. Apple has booked the US income tax on a majority of that foreign income. Anyone who’s run a business knows, if your accountant has booked that tax, then you can’t spend it. It’s as good as gone. It doesn’t boost your EPS, it doesn’t boost your net income. It doesn’t boost your share price if it’s not boosting your income or EPS.

        With accrual accounting which almost everyone does, it doesn’t matter that something is not yet paid, as long as it’s booked, so calling Apple’s foreign held cash as “untaxed” is nonsensical. It makes no sense from an accounting standpoint.

  2. I’m willing to bet any tax reforms will benefit all of the FANG stocks more than Apple. I know Alphabet hold quite a bit of cash overseas so they should definitely benefit more than Apple. Same goes for Microsoft. Apple will see tiny share gains compared to these two companies I mentioned. Apple never gets the investor interest other tech companies get and I can’t figure out why.

    1. I’ll take that bet. Apple has the highest net effective tax rate of any FANG stock. Here’s the list:

      Global net effective tax rates:
      Apple: 26%
      Facebook: 18%
      Amazon: gotta have taxes in order to benefit
      Netflix: the same as Amazon, gotta have taxes in order to benefit
      Google: 19%
      Microsoft: 15%

      As you can see, if the new corporate tax rates on US income and foreign income drop, dropping the global rate, the one that will benefit the most is clearly Apple.

      And, as far as repatriation is concerned, Apple has booked the most US tax on that cash held overseas, so it will get the biggest benefit of a restatement of past earnings. Some companies don’t book any US tax on foreign income. Apple books US tax on about 2/3rds of its foreign earnings, with the rest for working capital.

      Whether stock prices go up is up to the market, but as far as a benefit to shareholders, Apple will get far more cash back, per share, and far more future cash, per share, than its competitors. Given that Apple has a cash return program in place, shareholders should see a huge benefit.

  3. The only way Apple’s profit would “explode” from slashing the book rate on corporate earnings is if all the loopholes that bring the effective tax rate are slashed & overseas tax havens closed first. Otherwise, the effective tax rate for large corporations won’t change much. You can see in their SEC filings that Apple pays no more than 20-25% tax on US hardware sales, however it avoids significant services taxes by running the profits through foreign subsidiaries and magically changing the value of the service on internal bookkeeping when the services cross borders. Just like every multinational company.

    1. Actually, tax watchdogs have calculated Apple’s effective US tax rate on US income at 31%, not 20-25%. Just do an internet search. Two, you imply that Apple is shifting US income offshore. Can you please cite the evidence? Apple has relatively small service income relative to software companies like Google, Facebook, etc. What are they doing to their service income? By your explanation, you’d think those two companies would run all of their income thru overseas subs and not have to pay any US tax.

      1. Depends on the basis of the tax calcs. Some analysts also estimated much lower than 20% for US only. By funneling Europe revenue through shell companies, some income there had an effective tax rate of 0.05%. So overall, talking about the book rate means nothing.

        1. Who estimates Apple pays less than 20% in the US? Paying less in Europe puts a company on the hook for more in the US. Booking the US tax means they get no stock market benefit since the EPS is based upon the tax rate they book.

            1. Actually, Apple’s GLOBAL net effective tax rate is 26%.

              Tax watchdogs have estimated Apple pays a US net effective tax rate of 31% on US income. We also know that Apple pays roughly 2% on foreign-earned income. Apple’s income breakdown between US-earned and foreign-earned is ⅓ to 2/3rd.

              So, if we do the math. 31% tax rate on 1/3rd of total income is 10.3% and 2% tax rate on 2/3rd of total income is 1.3%. Combine the two and Apple’s real paid tax rate is 11.6%. Then how does Apple report 26%?

              They book US income tax on 2/3rds of their foreign-earned income. Let’s do the math. 2/3rds of total income is foreign multiply by 2/3rds to get how much of income is having US tax booked. You get 4/9ths. Take that 4/9ths and multiply by the US tax rate of 35% and you get, 15.5%. Add that to your 1.6% and you get 27.1%. Because I’m using rough approximations, it’s slightly different than 26%, but you can see that Apple is “booking” US tax on about 2/3rds of its foreign-earned income.

              If Apple didn’t book that tax, and legally they don’t have to, they could pay a global net effective tax rate of about 11.6%, and boost earnings sky-high, and earn big bonuses for the execs, but they don’t.

              When the NYTs ran their Apple Tax scandal article a few years ago, their tax expert, Martin Sullivan, expressed surprise that Apple was booking so much US tax on foreign income. Why? Because a company trying to cheat the US tax man would not be doing so, since they legally don’t have to. There are US companies that book no US tax on foreign income like eBay. Their tax rate is very low. Apple does the very opposite of what you would expect a tax cheat to do. Maybe, it’s because they aren’t cheating.

  4. I have mixed feelings about the possible tax reductions. While they will benefit my AAPL stock holdings, the increased national debt and potential cuts in federal programs concern me. I’d really like to see all of our highways repaired.

        1. Actually, that was Hillary’s proposal as well. And it was also the House’s proposal, and the Senate’s. Everyone with skin in the game has agreed to use any taxes repatriated for infrastructure. That was all proposed over a year ago when Obama was still in office. Everyone had a tax plan that involved repatriation with the tax receipts used for infrastructure spending.

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