Apple Inc. (AAPL) released its fiscal fourth-quarter financials Tuesday after the close, and yet again the results were spectacular.
The Cupertino, California-based Apple sold 48.05 million iPhones in the September quarter, helping the company generate $51.5 billion in revenue, above the $51.1 billion Wall Street expected.
Apple also netted $11.1 billion in profits, which broke down to earnings per share of $1.96, beating the consensus $1.88 EPS estimate.
While revenue guidance for the holiday quarter was a little weaker than expected — Apple projects revenue between $75.5 billion and $77.5 billion to a consensus $77 billion — Apple’s stock is still trading higher, up 2% in afternoon trading.
However, the biggest issue Apple faces going forward isn’t on the income statement. It’s on the balance sheet.
How Do You Invest $206 Billion?
Having gobs of money isn’t the worst problem you could have. But in Apple’s case, it is somewhat troubling, because there’s only so much they can do with that cash to increase shareholder value.
At the end of Q3, when the company had $203 billion in the bank, an estimated $181.1 billion of that was overseas, according to Citizens for Tax Justice.
Why does that matter?
Only because the company can’t pay dividends or execute stock buybacks with that overseas cash. It can invest it abroad, begin campaigns in foreign markets, spend it on overseas manufacturing, etc. But it can’t return it directly to shareholders.
That said, Apple has been returning money to shareholders. In the most recent quarter, Apple returned $17 billion to shareholders through buybacks and dividends, and has completed $143 billion of its $200 billion capital return program.
Because the U.S. has repatriation taxes in the 30%-plus neighborhood, Apple won’t be bringing back any of that dough anytime soon. It sure could use it, to take on Tesla (TSLA) and Alphabet (GOOG, GOOGL) in the electric/autonomous vehicle market, for instance.
Or maybe Tim Cook and Co., if they had their druthers, would rather just buy Uber — which is in the early stages of making autonomous vehicles of its own — for $50 billion or so. (I would immediately sell my AAPL stock if that ever happened, because I think the Uber IPO will be insanely overvalued, but I’m just spitballing here.)
Last but certainly not least, Apple could buy back massive amounts of stock and issue huge special dividends if its overseas cash were repatriated.
I strongly believe that it’s in the best interest of Apple stock holders to have Apple repatriate their $180 billion-plus overseas tax hoard, but it would also be a boon to the greater U.S. economy. Investments in R&D, high-quality labor, construction of new campuses, etc … this would doubtlessly strengthen the U.S. job market and local economies.
While I don’t frequently agree with activist investors — who typically are just out to make a quick buck by taking over a board seat or two, restructuring, paying themselves fat dividends and moving on — I agree with AAPL stock holder Carl Icahn on this issue.
Icahn thinks Apple could be worth $240 per share, more than double its current price, if it was allowed to repatriate its foreign earnings at a 5% to 10% tax rate.
Yes, it would be controversial. But with every quarter that Apple grows its cash hoard overseas, the raw number — $206 billion at the end of the fourth quarter — becomes less meaningful.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
