Apple cash neutral: Smart capital allocation or corporate gimmick?

“Apple is sitting on mountains of cash in its balance sheet with a net cash position of $163 billion. In addition, the business generates over $52.3 billion in free cash flow per year,” Andres Cardenal writes for Seeking Alpha. “With the new tax legislation allowing the company to repatriate cash held overseas at a conveniently low cost of 15%, management has already indicated that it will become cash neutral over time.”

“Chances are that a considerable share of that capital will be allocated to more share buybacks,” Cardenal writes. “If the business is fundamentally solid and the stock is priced at reasonable levels, then management is making a sound decision by investing the company’s capital in an asset with attractive expected returns, meaning the company’s own shares. Conversely, if the fundamentals are deteriorating and/or the stock is overpriced, then share buybacks are clearly destructive in terms of shareholder value.”

“Apple currently has a share buyback program which has been in place since October of 2012, and such program has delivered impressive results for shareholders over time,” Cardenal writes. “Apple is a money-making machine, and the stock is priced at valuation levels which are quite attractive from such a profitable business. For this reason, an enlarged share buyback sounds like a smart move to create shareholder value over time.”

Read more in the full article here.

MacDailyNews Take: Smart capital allocation.

SEE ALSO:
What ‘cash neutral’ means to Apple shareholders – February 22, 2018
UBS: How Apple could get to zero net cash – February 14, 2018

15 Comments

  1. I’d rather see Apple invest that money inside the United States in facilities and equipment to create a 21st Century high tech manufacturing base. On paper, corporate bonds and share buybacks look good but huge new buildings full of workers looks pretty awesome in “3D”.

    It seems to me that an 163 billion dollar investment in America and our workers will pay dividends for decades to come. 🙂

  2. I rather see every company pay dividends to share holders of 80% of the profits to shareholders. It’s not Apple’s job to create jobs. Apple is to make money and pay the lenders back, the shareholders.

    1. Apple will never create thousands of manufacturing jobs in the USA. The only sort of assembly that Apple could contemplate doing in the USA would be highly automated robotic assembly with just a modest number of skilled support staff.

      Americans wouldn’t pay the higher costs for iPhones built by hiring American assembly workers and Americans wouldn’t be prepared to do that sort of work for the sort of wages that would make it viable.

      With the current hostility towards non-American workers within America, it would be madness to create a facility expecting such workers to be available. If a company needs large numbers of cheap foreign workers, it would only be practical to employ them in another country.

      1. What I’m saying is Apple is in a unique position with their cash and cash generating machine to create an ENTIRE NEW industry here in the United States. For long term profitability and stability they should do so.

        I live in the southeast and I’ve seen what American workers can build at BMW, Mercedes Benz, Toyota, Kia, Hyundai, Honda, John Deere, Kabota, Caterpillar, Gulfstream, Boeing, and Airbus to name a few. I believe American workers can compete on skill, quality, and PRICE with anyone in the world. I also believe strongly that it is in the best interests of Apple and Apple shareholders to also do so.

        Cook had the right idea 2 decades ago to outsource Apple’s manufacturing to Asia but times have changed and it is time to rethink what we are doing. No doubt without lean manufacturing 15 years ago Apple would have gone belly up. Now the story is different. There is no reason why a large percentage of Apple’s manufacturing can’t happen in the US, with the US becoming a major technology exporter of phones, tablets, and computers.

        PS: if you think the companies I referenced above aren’t high tech, you haven’t been inside a major manufacturing plant recently. In addition, there is no reason why all those machines can’t be designed, built and serviced in the US. For 40 years I’ve been hearing all kinds of excuses why American manufacturing can’t do it. Well times have changed, America IS DOING IT. Open your eyes and stop believing the BS.

        1. The companies you listed only have to make several hundred of something a month in order to be in business. Many of them far less than that. That scale doesn’t come anywhere close to Apple’s numbers. I don’t buy into a lot of the pie-in-the-sky wishful thinking, I leave that to the liberals. I’m willing to accept that it’s an idea that might work, but there are very few ideas around this that are rooted in sensible conservative reality.

          1. You know you might have a point there, two examples:
            1) Gulfstream has been manufacturing airplanes in Savannah, GA for FIFTY YEARS.
            2) Mercedes Benz has been manufacturing cars in Alabama for TWENTY-FIVE YEARS.

      2. non-American workers.” Please, that statement is just naive, incomplete, or full of bias. There is an ongoing and vibrant discussion about those not in the US legally, read: illegally. Hostility? Sure there is of everything, anywhere at some time, but broad hostility? I’ll add, the same frustration is apparent in business hiring and college admissions where those of Asian ethnicity are rejected over other less qualified. Yes, there’s frustration/disruption here too. “Hostility?” Please.
        Maybe you are thinking of the hostile protests of those that don’t want the law to be followed? I saw a video of such when the US Prez visited CA yesterday. BTW, as an American, I’m fully supportive and welcoming to any/all that want to make the US home, be productive and do all legally.

  3. Buying back shares do not help a small share holder unless the price per share of Apple goes to $500.00+ per share…then Apple is valuable to people owning shares…I would rather see Apple giving $2.00+ per share as a dividend for those who took a gamble on investing in apple as these years…

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