$50 Billion Says Apple Is Cheap

There's been an endless debate for the past few months over whether or not Apple (NASDAQ: AAPL  ) is cheap. The company's traditional valuation metrics are among the lowest in the entire stock market, but bears point to growth deceleration and margin contraction as justifications for declining trading multiples.

Well, $50 billion says Apple is cheap.

That's how much Apple is boosting its current share repurchase program by, and represents the vast majority of the total increase in planned capital returns through 2015. Apple's initial plan unveiled last year included $10 billion in repurchase authorization, and the new total is $60 billion. To date, Apple has only repurchased $2 billion of stock (4 million shares), which still leaves a massive $58 billion budget for Apple to buy back shares.

That could buy approximately 143 million shares at current prices, or over 15% of all shares currently outstanding. Realistically, these repurchases will take place through the end of 2015 and there will also inevitably be some dilution related to equity compensation, but the point is this is an enormous vote of confidence.

Apple is now up to $144.7 billion in total cash, which translates into $154 per share. Factoring in the new earnings figures and cash balance, Apple now trades at six times earnings excluding cash. At its current valuation, cash comprises nearly 40% of its market cap. That's what I call cheap.

Other companies sometimes get flak for ill-timed buyback programs. For example, Netflix effectively repurchased shares for $222 in 2011, only to sell them back to the market just months later for $70. That's quite a bad trade, but shares were trading around 80 times earnings at the time so it was reasonable for some skeptics to question the repurchase program.

If you don't believe me that Apple is cheap, believe Tim Cook, because $50 billion speaks pretty loudly. Talk about putting your money where your mouth is.

The debate continues: Is Apple a buy? The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (14) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 24, 2013, at 9:23 PM, Venom991 wrote:

    It's always comforting to see the company back itself with a stock buyback. I'm confused about people being scared about Apple not innovating, i'm not exactly seeing new products being put out and flying off the shelves by other companies either. Maybe somebody can tell me what these new products that are being innovated and flying off the shelves and who makes them. By new i do mean something new and innovative not a knock off of an iphone or an ipad.

  • Report this Comment On April 24, 2013, at 9:23 PM, Oril wrote:

    Evan, you are confused. That 50 billion is not company money, he is borrowing it. That's like taking out a second mortgage on your house and handing it over to your kids. Never a good idea particularly when they were talking about having you committed to a home anyway so they could sell grandmas silverware.

  • Report this Comment On April 24, 2013, at 9:51 PM, lakawak wrote:

    The Daily Motley Fool Pump and Dumpo Apple article.

  • Report this Comment On April 24, 2013, at 10:00 PM, carla01j wrote:

    No, Oril, you are confused. It's like using your 401k as collateral for a 2% loan (that you pay interest only using your regular income) instead of withdrawing money from your 401k and paying the early withdrawal penalty as well as regular income tax (totaling 35%).

  • Report this Comment On April 24, 2013, at 10:15 PM, Jjkiam wrote:

    Please people settle down! The use of the credit markets is the smartest thing Apple could access on behalf of shareholders! Not only do they avoid the tax liability but the interest is deductible going forward plus they retain the option to repatriate the overseas cash if interest rates go up in the future if the rates they have to pay go up to the point where it makes sense. This unprecedented buyback will give them the massive ability to fight the shorts in the day to day battle of volatility and at the same time reduce the outstanding share count significantly raising the EPS. Obviously only major new innovations in "gadgets" and revenue generating services will turn the stock around but shorts beware the bottom has been determined at 400!

  • Report this Comment On April 24, 2013, at 10:30 PM, Oril wrote:

    I wonder If the Obama administration will consider Apple to be too big to fail and bail them out someday like they did the institutions who enriched their executives in the sub prime mortgage fiasco which almost led to the collapse of the financial world as we know it. I doubt it since there is nothing left to back the money that has already been printed.

    Executives who believe that issuing more debt solves everything while avoiding tax obligations are destined for failure. Steve Jobs must be turning over in his grave.

  • Report this Comment On April 24, 2013, at 10:31 PM, OracleofOmahaha wrote:

    Samsung is not innovating with any new products, Nokia no, HTC no, bbry no, Microsoft no. Why is no one asking this question with these companies. It must be obvious that these companies are all just waiting for Apple to tell them what new product they need to copy next.

  • Report this Comment On April 24, 2013, at 10:42 PM, daveandrae wrote:

    Oril wrote-

    "Executives who believe that issuing more debt solves everything while avoiding tax obligations are destined for failure. Steve Jobs must be turning over in his grave."

    --------------------

    Amen!

    General Motors once issued debt to "buyback" its stock, too. The share price still fell to 0.

  • Report this Comment On April 24, 2013, at 11:05 PM, verces wrote:

    APPL will have a hard time to innovate as their vision is already gone with SJ. Just look at it, with 100 billion plus on hand it seems they are still confused what to do next - why not build a tuti fruiti iPhone of different colors! Honestly, Investment wise, check BBRY or NOK because gone is the time as both companies have now a smartphone that functions similar to iPhone - the bar has been surpassed and with shares trading at 70% discount as per industry norm of valuation. Nobody should miss this and we'll wanted to make money right.

    BBRY 28 to 1 NOK 130 to 1

  • Report this Comment On April 24, 2013, at 11:55 PM, dwilh51183 wrote:

    CFO Peter Oppenheimer said yesterday in the conference call that Apple was going to start buying back their shares this month !well guess what, there's only six days left in this month .if you short Apple you must have rocks for brains because $60 billion is a huge Apple should be trading at $1000 a share next year! Buy the stock it's going higher and the guy made a great point what other companies out there are innovating with new products? Google glass will cause major car wrecks and billions in lawsuits. One more thing, I get tired of hearing everybody say Apple only sold this much of this and they only sold this much of this and this product dropped by with 15% . the bottom line.... is Apple making money? Yes they're making hords of cash and that's all that matters. Investors don't ask a grocery store How many tomatoes they sold and how many potatoes they sold, or how much corn on the cob and how much meatloaf they sold! They just want to know what they earned

  • Report this Comment On April 25, 2013, at 12:06 AM, Coppe10 wrote:

    Oril,

    I know it will be hard for you to see this, because

    your comments are so broad sweeping about the state of debt and companies. It's not like a second mortgage... please re-read this. A second mortgage is when you have a mortgage or debt to start with, and then add another. Apple has no debt, they can simply borrow at rates likely less than 2 % and buyback shares that are currently paying dividends of 3%. I'm not sure if you really read the earnings report but they netted over 9 billion dollars for the 3 months. Imagine that, 9 billion after expenses. They are going to buyback shares to the end of 2015. 58 billion! That's over 10 more quarters. Even if Apple couldn't muster any more than 9 billion per quarter for the next 10 quarters. That's still 90 billion dollars to the end of 2015. When you bought your first house you likely borrowed with 5 % down and you were completely unproven to the bank, and yet you seem really agitated that Apple is somehow destined to be considered too big to fail, and is part of the overall financial cancer that is corporate america, because they're going to consider using a very strong balance sheet, and earnings potential to invest back in something they believe very strongly in, themselves. Can you see the other point of view? P.S if every person has the right to use the current tax code as a means to pay as little tax as is legally possible. And I will say again....using any legal means, why can't corporations use the same legal means to avoid paying tax?

  • Report this Comment On April 25, 2013, at 7:09 AM, daveandrae wrote:

    This isn't rocket science.

    Just because someone doesn't have any "debt" doesn't mean that they should borrow money to buy stock.

    This is especially an asinine idea when you're sitting on piles of cash earning zero percent in interest.

    Put simply, even if I had 0 debt, I still wouldn't max out a credit card, even at 0% interest to buy ANY stock. Thus, since Apple generating so much "cash" and thinks their stock is sooooo cheap, why aren't they using their own excess savings to buy it like everyone else?

    They're not.

    Instead, they're using leverage. The mother of all no no's when you're earnings are in a state of decline.

  • Report this Comment On April 25, 2013, at 2:28 PM, colt1210 wrote:

    AAPL isn't using their cash because the majority of their cash is sitting oveseas. If they bring it back here to repurchase shares, guess what.....they have to pay taxes on it, well above the 2% interest for their debt.

    Every now and then the US government allows companies to bring their overseas cash back to the US without penalty (I think the last time was in 2011 but don't quote me on that.) I'm sure once the government opens this grace window again you'll see at least some of that mountain of cash come from overseas and back to the US and they can deploy as they wish.

  • Report this Comment On May 02, 2013, at 10:18 PM, BlackberryIsKing wrote:

    The only company that copies other is Apple. Steve Jobs was not a genius, unless stealing other people's great ideas is genius. He was a scum bag spin doctor. Glad he's gone. Read his biography. Every one hated him, even his family. They only stayed with him for the money. He was a low life. He never inovated like Blackberry, he never had an original thought. Apple's day's are over. It's Blackberry's turn now. iOS is a POS, it always has been. Not even a real OS. BB10 is the best mobile OS around. It is future ready, while iOS is dead, and Android is unmanageable. The future truly is Blackberry's.

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