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08-16-2013, 12:09 AM #1
RBC Believes Apple Could Double $60B Share Buyback and Ups Price Target to $525
After wind of billionaire investor Carl Icahn pushing for Apple to initiate a larger share buyback, RBC Capital Markets believes the iPhone maker could nearly double its current $60 billion in planned expenditures while maintaining a manageable level of debt in order to boost its share price. Analyst Amit Daryanani sees such a move adding roughly $4 to Apple’s fiscal year 2014 earnings per share, an increase of roughly 10%. Most large cap companies have a debt to earnings before interest, taxes, depreciation and amortization ratio of about two times, while Apple is currently at 0.3 times.
If Apple were to accrue more debt and nearly double the size of their planned buyback to about $115 billion, the company could still have a debt-to-EBITDA ratio of 1.3 times according to Daryanani. This would keep it well below other large cap companies and in line with fellow tech company IBM.
Daryanani sees a major increase to Apple’s stock buyback program potentially boosting the value of AAPL shares by as much as $90. Apple currently plans to spend $60 billion through 2015 to repurchase shares. With its stock off more than $250 from its all-time high, Apple opted to accelerate its schedule and spend $16 billion last quarter to buy back 36 million shares.
As of right now, Apple still has more than $40 billion to buy back shares over the next two years but Icahn believes the company should accelerate the plans. The investor encouraged Chief Executive Tim Cook to do so in a conversation earlier this week while also revealed that he has a “large position” in the company worth about $1.5 billion earlier this week.
Regardless of whether or not Apple does boost its buyback program, Daryanani said investors remain focused on the company’s new iPhones, which are expected to be introduced on September 10. The analyst upped his price target for AAPL from $475 to $525, with an “upside scenario” of $600.
Source: RBC Capital Markets via AppleInsider