Apple Inc. (AAPL): Einhorn Got What He Wanted

Page 1 of 2

David Einhorn GREENLIGHT CAPITALApple Inc. (NASDAQ:AAPL) has long been criticized for the $150 billion pile of cash on its balance sheet. Shareholders – including hedge-fund billionaire David Einhorn – want Apple to return more of that capital to investors. On February 7, David Einhorn, the famous hedgie from Greenlight Capital, published  a pressing letter to Apple Inc. (NASDAQ:AAPL) shareholders. In this letter, he urged shareholders to resist the company’s attempt to eliminate preferred stock from its charter. According to Einhorn, an Apple Inc. (NASDAQ:AAPL) shareholder since 2010, the iconic company could unlock tremendous value from its balance sheet by giving out more cash back to the hands of its shareholders.

Well, Einhorn just got his wish. Some of it at least.

What Apple will do for you (and what it won’t)

Apple Inc. (NASDAQ:AAPL) has no intention to issue preferred stock. But that doesn’t mean that it’s going to sit on its hands and do nothing. In its latest annual conference call, the company announced it would increase its share-repurchase program from $10 billion to $60 billion. It would also increase its quarterly dividend by 15% from $2.65 a share to $3.05 a share. The company now spends around $11 billion a year on dividends, making it one of the largest gross dividend-payers in the country.


Einhorn’s fund, Greenlight Capital, was pleased with the announcement. A spokesperson for the fund said the following in a statement.


“We applaud Apple’s decision to borrow money and return excess capital to shareholders, an idea that was off the table only months ago. This positive development represents a more shareholder-friendly capital allocation policy and demonstrates the conviction of Apple’s management and board in the company’s future.”

A Well-timed move

I believe that Apple Inc. (NASDAQ:AAPL)’s move is very smart and comes at an excellent timing. It’s smart because it transfers a very clear message to investors – We aren’t a growth story any more, so stop perceiving us as such. We have turned into a mature company, and a lucrative mature company pays hefty dividends to its patient shareholders. It is a well – timed move because the best time to initiate a massive buyback program is when shares are trading on the cheap. Today, Apple’s P/E and price/sales are 9x and 2.3x, respectively. That’s very cheap especially for a mature company with a 3% div. yield. Also, Apple Inc. (NASDAQ:AAPL)’s enterprise value (market cap minus cash plus debt) is about $250 billion. At today’s price, the company is trading for around five times enterprise value to its earnings before interest, taxes, depreciation, and amortization (EBITDA). Fellow big tech companies Microsoft Corporation (NASDAQ:MSFT) and Intel trade at P/Es of 10.5x and 11.5, respectively. In addition, both giants trade for a slightly higher EV/EBITDA ratio than Apple. In other words, Apple Inc. (NASDAQ:AAPL) shares are extremely cheap, relatively to other peers and on an absolute basis.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!