“Cash Neutral means what?” Mark Bern, CFA, writes for Seeking Alpha. “My understanding of the term based upon what little Apple CFO, Luca Maestri, stated earlier this month is that the company intends to keep enough cash on its balance sheet needed for operations, dividends, R&D efforts, and planned acquisitions along with a buffer to handle unforeseen contingencies. The rest the company plans on returning to shareholders over time.”
“Or, it could mean that it plans on giving its cash hoard back to shareholders over a pre-determined period of time while operating on the cash it generates from operations,” Bern writes. “The difference is that in the second scenario the company will likely continue to build up another cash hoard over time because it just cannot find uses for all the cash it generates. But that is not really cash neutral in my mind unless management is planning to increase its acquisitions efforts to buy more companies with potentially faster growth prospects. That would probably end up generating even more cash, though, so what would management do with that? That is the sort of problem every CEO wants.”
“Never in the history of mankind has any company had so much flexibility in its capital structure,” Bern writes. “Apple could buy just about anything it wanted. Why? Because it has and continues to generate so much cash. The company has an estimated $285 billion in cash. It could buy any company in the U.S. outside of the 15 largest companies by market capitalization for cash at current valuations. Each year with the excess cash it generates it could buy almost any company outside of the top 100 in the U.S., again for cash, because it generates so much free cash flow.”
“Of course, it probably will not make such moves because eventually it would run into antitrust issues and it is unlikely that management would want to stray too far from its core competencies,” Bern writes. “A couple of options that analysts at UBS consider real possibilities are to either buy back 10% of the outstanding stock over the next three years which they estimate would boost EPS (earnings per share) by 30% compared to current estimates; or Apple could do a combination of share buy backs and maintaining the dividend yield at 3% through 2023. Either way the result is likely to be a higher stock price.”
Much more in the full article – recommended for AAPL shareholders and prospective AAPL shareholders – here.
MacDailyNews Take: What we wrote back in April 2016 works just as well today:
A little birdy tells us that, when it comes to what you’ve seen so far from Apple, you’ve hardly seen anything yet.
UBS: How Apple could get to zero net cash – February 14, 2018