Apple (AAPL) Could Increase Buyback by up to $90 Billion, Says RBC
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Rating Summary:
39 Buy, 26 Hold, 7 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 14 | Down: 17 | New: 4
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(Updated - August 15, 2013 2:40 PM EDT)
On Tuesday, billionaire and activist Carl Icahn announced via twitter that he has taken a large stake in Apple (Nasdaq: AAPL). To anyone familiar with the financier's background, it was not a surprise to learn Icahn wants Apple to increase its buyback.
Apple currently has a buyback program of $60 billion, which it plans to complete by December 2015. Its quarterly dividend stands at $3.05.
In the past, Apple has been reluctant to overdo it on the capital allocation front, and the company has been criticized for hording cash. Nevertheless, many feel Apple has plenty of breathing room in terms of debt and could easily return more to shareholders.
In the view of RBC analyst Amit Daryanani, Apple's buyback could be increased by up to $90 billion.
"To assess the magnitude of a buyback, we looked at debt levels that are carried by large-cap companies across the board. Our analysis shows on average large-cap companies have a 2x Debt/EBITDA ratio (vs. AAPL at 0.3x) and this doesn't include the reality that AAPL has the largest cash position across these companies," said Daryanani.
"Should AAPL get comfortable with incremental debt on their balance sheets, they could increase their buyback size by $50-90B (debt/ebitda range from 1.3 to 1.8x)."
Daryanani estimated this could translate into EPS accretion of $4.00 to $7.00. It might also translate into stock appreciation of $50 to $90 - a certain delight to Icahn an other Apple investors.
RBC Capital has an Outperform rating on Apple with a modified price target to $525.00 (from $475.00).
For an analyst ratings summary and ratings history on Apple (NASDAQ: AAPL) click here. For more ratings news on Apple click here.
Shares of Apple closed at $498.50 yesterday.
On Tuesday, billionaire and activist Carl Icahn announced via twitter that he has taken a large stake in Apple (Nasdaq: AAPL). To anyone familiar with the financier's background, it was not a surprise to learn Icahn wants Apple to increase its buyback.
Apple currently has a buyback program of $60 billion, which it plans to complete by December 2015. Its quarterly dividend stands at $3.05.
In the past, Apple has been reluctant to overdo it on the capital allocation front, and the company has been criticized for hording cash. Nevertheless, many feel Apple has plenty of breathing room in terms of debt and could easily return more to shareholders.
In the view of RBC analyst Amit Daryanani, Apple's buyback could be increased by up to $90 billion.
"To assess the magnitude of a buyback, we looked at debt levels that are carried by large-cap companies across the board. Our analysis shows on average large-cap companies have a 2x Debt/EBITDA ratio (vs. AAPL at 0.3x) and this doesn't include the reality that AAPL has the largest cash position across these companies," said Daryanani.
"Should AAPL get comfortable with incremental debt on their balance sheets, they could increase their buyback size by $50-90B (debt/ebitda range from 1.3 to 1.8x)."
Daryanani estimated this could translate into EPS accretion of $4.00 to $7.00. It might also translate into stock appreciation of $50 to $90 - a certain delight to Icahn an other Apple investors.
RBC Capital has an Outperform rating on Apple with a modified price target to $525.00 (from $475.00).
For an analyst ratings summary and ratings history on Apple (NASDAQ: AAPL) click here. For more ratings news on Apple click here.
Shares of Apple closed at $498.50 yesterday.
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