AAPL Stock: What Can Apple Inc. Do With its $216 Billion?

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Apple Inc. (AAPL) is fresh off its Q1 2016 earnings release last week. In spite of reporting a record for quarterly profit by ANY corporation and setting a new high water mark for its own revenue, analysts and investors were not impressed.

aapl tech stocksThe AAPL stock price took a 5% one-day hit because of guidance that didn’t meet expectations for the current quarter, including the likelihood that iPhone shipments will decline on a year-over-year basis for the first time ever.

Buried in the results as a footnote for the most part was the fact that cash on hand increased to $216 billion, most of it held overseas, at the end of 2015. Backing out that total, which is about $39 per diluted share, means the cash and equivalents represent around 40% of AAPL stock’s market capitalization, about double the total shareholder equity, and pushes the forward P/E down to about 7, well below the valuations of rivals such as Alphabet, Inc. (GOOG, GOOGL), Microsoft Corp. (MSFT), and Amazon.com (AMZN). No other modern company comes close by any standard or metric to matching Apple’s cash horde.

Besides being critical of the sagging growth in the iPhone and other products, some investors are clamouring for the company to do something with all that cash. What are the options?

M & A

One of the options available to AAPL is to merge with or acquire another firm through what is commonly termed a corporate inversion. I’m not a corporate tax expert, but it appears that Apple would probably need to scoop up a European company and move its domicile out of the country to take advantage of more generous tax laws there. AAPL is already planning to expand its European HQ in Ireland. Might it be a good fit? One thing that goes against this thesis is that the company is nearing completion on its new “spaceship” building in Cupertino, CA. Would that just serve as US HQ instead?

Another possibility is to target smaller companies that could both help drive AAPL stock in the future and fit into Apple’s technology plans, including the electric vehicle said to be in the works.

AAPL Stock Buybacks

Using the cash on hand to buy back AAPL stock is another possibility, albeit one that comes with a big tax liability. Assuming Apple needs to repatriate its overseas cash it would be subject to double taxation on those funds, not something in the best interests of shareholders, according to CEO Tim Cook.

Count this one out probably.

Dividends

Bringing back cash to pay dividends also falls in the same category as the buybacks. Apple wouldn’t do it in all likelihood for the same reason discussed above.

Do Nothing

Another option is that AAPL could do nothing and just continue to hold the funds. Based upon the company’s own financials it is earning interest income and collecting dividends totaling about $3 billion, about 6% of net income, per year. Factoring in interest expense for borrowing, the net income was about $1.2 billion. Compared to most corporations this is a big deal.

This might be the best option at this point, barring an unforeseen inversion or merger deal overseas.

Conclusion

It appears that AAPL does not have many viable options for most of its cash. Putting it to work and collecting interest and dividend payments might be the best thing for now.

Disclaimer: The author owns shares of Apple stock.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/aapl-stock-apple-inc-cash/.

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