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AAPL Stock: 103.45 ( + 0.95 )

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Bernstein analyst pushes for Apple stock buyback

updated 05:15 pm EDT, Wed October 29, 2008

Bernstein on Apple reserve

Apple should be using its massive cash reserve for a stock buyback, argues Toni Sacconaghi of Bernstein Research. The analyst notes that Apple stock is trading at approximately 15 to 18 times earnings -- an unusually low ratio for the company -- and it thus has the rare opportunity to create a substantial EPS payoff for investors. "Mathematically," says Sacconaghi, "share buybacks boost EPS only if a stock's P/E multiple is lower than the reciprocal of the after-tax interest rate earned on cash."

Apple's cash reserves are currently valued at $24.5 billion, and generating approximately 1.55 percent in interest after taxes. Because Apple is hoarding it, however, Sacconaghi suggests that it is accomplishing very little. He proposes that by spending $10 billion of its reserves on a buyback, Apple could raise its GAAP EPS by 4 percent. By spending $20 billion, EPS could jump by as much as 9 to 15 percent, the latter figure depending on a front-loaded deal that would only complete in the first fiscal quarter of 2009.

The company's alternatives are said to be limited, such as a special dividend payment, which could actually backfire for shareholders by harming earnings growth. A better option could be a major acquisition, according to Sacconaghi, but Apple is believed to prefer purchasing small companies, which it can better coerce into following its goals. CEO Steve Jobs has hinted that Apple will make some form of investment in order to take advantage of the global economic crisis.




by MacNN Staff

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Comments

  1. starwarrior

    Joined: Dec 1969

    -4

    Stupidity

    Stupidity

  1. Will53

    Joined: Dec 1969

    +3

    What they forget...

    ... is that Apple doesn?t think and function along those lines. Apple?s main object is to develop and produce quality products to the best of their ability. The doings of Wall Street is not on their horizon. If people want to invest in the company; fine - but then the investors should not expect Apple to play the game with them. Still, I am sure it is a solid investment but most of all on a long term, not for pure speculation. Of course, some may profit even from that, because producing real value has its side effects...

  1. Athens

    Joined: Dec 1969

    -5

    ...

    Maybe Apple can buy GM and make a Apple Car lol

  1. slider

    Joined: Dec 1969

    +4

    Damn

    More analysts thinking they know how to run Apple better than Apple. Sure is nice of them to offer their advice. I wonder if they're offering to help out companies that are currently failing. F-ing hags.

    Comment buried. Show
  1. Guest

    Joined: Dec 1969

    -24

    u r all dumb

    hoarding all that cash is an assonine thing to do.
    They need to reward their shareholders, period.

    25 mil in cash laying around = EPIC FAIL

  1. eldarkus

    Joined: Dec 1969

    +5

    Epic fail

    seriously... can we find another term to use? Besides the fact that any company that has 24.5 billion in cash can hardly be associated with the juvenile term "epic fail".

    Anyone else think that $379 million in interest is an epic fail?

  1. Bobfozz

    Joined: Dec 1969

    +7

    u r all dumb

    Maybe if all of use ignore the idiot, "it" will go away.

  1. Guest

    Joined: Dec 1969

    +7

    EPIC FAIL

    Just let him be. The constant "epic fails" just demonstrate his epic stupidity and childishness.

  1. Mixotic

    Joined: Dec 1969

    -8

    Epic stupidity...

    ...is reserved for those that don't understand how a for-profit business operates with regard to shareholders. It is Apple's responsibility to protect shareholder value. We own the company!

    A publicly traded is owned by the public, regardless of who the majority shareholder is. Hence the need for a board of directors and (gasp!) annual shareholder meetings.

    This analyst is right on with his assessment. Apple should absolutely take the opporunity to buy back it's own stock.

    It would be better for shareholders AND for the company to own it's own stock and work to increase the value than hold a bunch of cash and earn 1.55% interest.

    Most of the comments above simply don't understand the economics at work here.

  1. Mixotic

    Joined: Dec 1969

    -7

    Epic stupidity...

    ...is reserved for those that don't understand how a for-profit business operates with regard to shareholders. It is Apple's responsibility to protect shareholder value. We own the company!

    A publicly traded is owned by the public, regardless of who the majority shareholder is. Hence the need for a board of directors and (gasp!) annual shareholder meetings.

    This analyst is right on with his assessment. Apple should absolutely take the opporunity to buy back it's own stock.

    It would be better for shareholders AND for the company to own it's own stock and work to increase the value than hold a bunch of cash and earn 1.55% interest.

    Most of the comments above simply don't understand the economics at work here. The analyst isn't telling them how to run the company, he's telling them how to take advantage of their investments. The stock is drastically undervalued right now, and as a result it should be bought...even by the company issuing it!

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