Apple Inc. (AAPL) stock is off to a rough start in 2016; shares quickly shed as much as 2% in morning trading after weak Chinese manufacturing data sparked a global equities selloff.
What’s more concerning is that today’s slump comes on the heels of an underwhelming 2015 in which AAPL stock lost ground over the full year for the first time since 2008, slipping more than 3%.
Understandably, investors are peeved. Wall Street has come to expect better from Apple stock over the years, and no one likes to see the biggest company in the world have a so-so year.
But Trip Chowdhry, an analyst for Global Equities Research, is more than just peeved. He wants heads to roll, and he’s not afraid to say who exactly needs to be “reassigned” among the top brass.
According to Chowdhry, AAPL in its current state is a “culture of bozos,” led by its incompetent CEO Tim Cook, who needs to “go back to his Operations role.” CFO Luca Maestri, too, should really “go back to his Accountant role,” says the analyst.
Under Supreme Leader Chowdhry, Jonathan Rubinstein would assume Cook’s CEO title, while Fred Anderson — who served as AAPL CFO during the early days of the Steve Jobs-led turnaround — would return as Chief Financial Officer.
With all due respect, Chowdhry’s note and suggestions are utterly idiotic.
Apple in 2016
AAPL stock lost 3% last year. So what? I’ll admit that as an Apple shareholder myself, I haven’t been overwhelmed with the Tim Cook era. But to be fair, Steve Jobs is the Michael Jordan of tech CEOs: He’s an impossible act to follow.
Apple hasn’t been innovating as much under Cook as it did under Jobs, but it’s not for lack of trying. The Apple Watch, Apple TV, Apple Pay and even a rumored Apple Car are all products that have or will come to fruition under the Cook regime — and each one is awfully ambitious.
It’s also true that none of those projects will be a material driver of AAPL stock — the company derives two-thirds of its revenue from the iPhone — anytime soon. But that’s simply a product of the iPhone’s overwhelming popularity, and to characterize Cook as “distracted” and accuse the board of callously disregarding drivers to the Apple stock price — both allegations Chowdhry made — is entirely off-base.
The angry analyst points to Cook’s 60 Minutes interview in which Cook debates the merits of the repatriation tax, as well as Apple’s willingness to take on debt, as evidence the CEO is not focused on shareholder value. That’s absurd.
On the contrary, Cook’s adamant position on the need to reform the repatriation tax, which stands at 35%, is rather friendly to AAPL stock owners. At last check, the company had over $180 billion in cash overseas; Apple would have to pay more than $60 billion to Uncle Sam to bring that money back to the U.S. That’s more than 10% of Apple’s market cap.
As for the borrowing, Apple’s debt load isn’t unreasonable by any means. It actually makes a lot of sense to borrow money and leverage up return on equity while interest rates are near rock-bottom lows.
Somehow, Chowdhry thinks its Tim Cook’s fault — and the board of director’s fault for keeping Cook in power — that Wall Street doesn’t give Apple stock a higher price-to-earnings ratio. Apple trades at 11.2 times earnings while the S&P 500 trades at about 20 times earnings. During Steve Jobs’ reign, AAPL routinely traded at a premium to the market, Chowdhry reasons.
First of all, that’s not a coincidence: AAPL deserved to have a higher multiple under Steve Jobs because Apple was a fraction of the size it is today and thus had much greater growth prospects then. It’s a lot harder to double as a $600 billion company than it is to double as a $60 billion company.
Secondly, Tim Cook and the Apple board have no power to change Apple’s P/E multiple. If they did, don’t you think they’d make it higher than 11?
As a shareholder myself, I know I would, because I think it’s worth more than that — and I happen to believe Wall Street will catch on to that fact again in the coming years.
As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
