“A few years ago, the Steve Jobs era of Apple – during which it issued no debt – ended,” Josh Arnold writes for Seeking Alpha. “Tim Cook and team found value in issuing debt, mainly to buy back lots and lots of stock. Apple has more cash than any other company in our market by a wide margin but much of that cash is held overseas. A repatriation deal could change that, should it actually get through Congress, but that still seems like a long shot at this point. Until that happens, Apple is likely to continue to issue debt.”
“Apple has tacked on almost $100B in incremental debt to its balance sheet in the past few years,” Arnold writes. “Given that Apple needs its buyback to continue to remove a significant portion of the float going forward in order to maintain its current multiple, the fact that its debt is still so easy to finance is hugely important.”
“If Apple were in the mid-teens in terms of financing costs against operating income, I’d be worried. But given that it is still almost unbelievably under 4%, it can issue another $100B+ in debt and barely notice the additional financing costs,” Arnold writes. “That will drive the buyback while allowing it to pay the sizable dividend as well and keep EPS growth on track going forward. Cook and team have unequivocally done the right thing in terms of issuing debt and it looks to me like maybe it doesn’t have enough debt yet given how easy it is for it to finance its obligations. At any rate, this is very positive for Apple’s EPS growth outlook as the powerful tailwind of the buyback will be here for many years to come.”
Much more in the full article here.
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