Is David Einhorn Right About Apple Inc. (AAPL)?

Page 1 of 2

With Apple Inc. (NASDAQ:AAPL)‘s annual shareholder meeting coming up next week, investors are likely to focus primarily on Apple’s cash problem. It’s a good problem to have too much money, but in this case it’s still a problem nonetheless.

Ahead of the meeting, Apple Inc. (NASDAQ:AAPL) is wrangling with hedge fund investor David Einhorn, whose Greenlight Capital holds 1.3 million shares of the company. Einhorn boosted his fund’s holdings in the Mac maker by 216,000 shares, or 20%, during the fourth quarter, and is now butting heads with management over the bundling of a proposal in Apple’s proxy. Ultimately, Einhorn would like to see Apple Inc. (NASDAQ:AAPL) issue high-yielding perpetual preferred shares as a clever way to give more back to shareholders.

Einhorn’s on to something
For what it’s worth, one analyst has Einhorn’s back. Topeka Capital Markets analyst Brian White said today that Apple needs to “seize the opportunity” and return significantly more cash back to investors. White doesn’t think that Einhorn is dead set on his preferred stock idea, but it’s just one of several ways that Apple Inc. (NASDAQ:AAPL) can reduce its cash balance for the benefit of shareholders.

Source: SEC filings. Calendar quarters shown.

White is also the Street analyst that seems intent to keep the highest price target on Apple at all times. He previously had a target of $1,111, but has now moved that figure down to $888 to accommodate for the recent weakness.

Too much, too fast
By White’s estimates, Apple Inc. (NASDAQ:AAPL)’s cash balance could easily balloon to an even more absurd level of $241 billion by 2015 at the current rate unless the Mac maker changes its hoarding ways. To put that figure into context, that would be more than Microsoft Corporation (NASDAQ:MSFT)‘s entire current market cap — just sitting around as cash.

We already know that Apple’s money mountain isn’t earning a whole lot, in part because it’s goal is capital preservation. It’s also putting a drag on some of Apple Inc. (NASDAQ:AAPL)’s ratios regarding management effectiveness, such as return on equity and return on assets.

Bring the cash back home?
The bigger hurdle is that most of those dollars are stuck overseas due to hefty repatriation taxes. After the repatriation tax holiday in 2004 set a precedent, companies have continued to hold out in the hopes that another holiday would eventually see the light of day. Nearly a year ago, Apple said it was lobbying for another such holiday, but lawmakers don’t seem interested.

Source: SEC filings. Calendar quarters shown.

As it stands, $94.2 billion (69% of total cash) is stuck overseas and cannot be returned to shareholders. This is one reason why Einhorn’s idea is appealing: because Apple could fund it with domestic cash.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

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 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!