Apple Gears Up to Spend All Its Cash

Apple Inc.’s (AAPL) net cash position currently stands at $163 billion, but that is expected to decline to zero over an unspecified period of time.

Speaking during a conference call to discuss fiscal first-quarter results with Wall Street, Apple Chief Financial Officer Luca Maestri said that given the increased “financial and operational flexibility” to its cash held overseas, “we are targeting to become approximately net cash neutral over time.” Maestri said during the call, according to a transcript published by Seeking Alpha, that the company will provide an update on where the capital will be allocated when it reports fiscal second-quarter results. He said that is consistent with the timing of previous updates. (See also: Why Apple's Supercycle Has Only Begun.)

At the same time that Apple executives were holding a conference call, the Financial Times published an interview with Maestri in which he indicated Apple will spend the money on dividends, mergers and acquisitions and share buybacks. At the end of its fiscal first quarter, Apple had a gross cash balance of $285.1 billion, with $269 billion held outside the U.S. Apple also said it paid $38 billion in taxes on the overseas cash and as a result has net cash of $163 billion.  

An Apple Buyback Bonanza?

Ever since President Donald Trump signed the tax reform bill into law in December, speculation has been abounding about what Apple will do with its huge cash pile, the majority of which is outside the U.S. In addition to lowering the corporate tax rate, the tax reform bill enables companies to bring the cash back into the U.S. at a reduced tax rate. (See also: Apple May Lose Crown as World's Most Valuable Company.)

In early January, UBS analyst Steven Milunovich estimated in a research report that Apple will buy back $122 billion in stock throughout 2019 thanks to the repatriation tax holiday. He said that shares should rise as it becomes clear how it benefits from the reworking of the tax code. "Apple clearly is a beneficiary of overseas cash repatriation ... Repatriation of ~$250 bn of offshore cash should increase the rate of Apple's share buybacks since the company believes the stock remains attractive in that its service business is undervalued," wrote Milunovich at the time. The analyst thinks repatriation will free up as much as $25 billion, or about 3% of its market capitalization, with Apple's annual free cash flow remaining around $60 billion. He highlighted the fact that Apple's target capital structure has been relatively consistent over the last five years, with the tech giant buying back roughly 5% of its shares each year.

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