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Apple Inc. (AAPL): Do Expensive Habits Equal Expensive Buys?

Apple Inc. (NASDAQ:AAPL) has been working on plans for a new headquarters/campus for a while now, but the cost of this project keep growing. Five people close to the project (who weren’t authorized to speak on record) estimate the cost to be $5 billion. In contrast, only $3.9 billion is estimated to be spent on the new World Trade Center complex in New York. Could this money be better spent elsewhere? Let’s compare Apple to some other well known companies/headquarters and see the fluctuation in stock price.

Apple Inc. (AAPL)

It’s hard for me to even imagine a $5 billion company campus. Apple Inc. (NASDAQ:AAPL)’s campus would be built in Cupertino, CA. Roads and parking spaces are expected to be hidden underground, the building would include several cafeterias (including one that could fit 3,000 employees), and plans call for unprecedented 40-foot, floor-to-ceiling panes of concave glass from Germany.

To put this in perspective, let’s crunch the numbers. Honestly, $5 billion it isn’t much money to a company with $136 billion in available cash — its only about 3.7% of that available cash. So, what’s the problem? The company posts $46.3 billion in FCF and is acquiring more each and every day. However, some shareholders show concern over these extravagant plans. Keith Goddard, who owns 30,537 shares of Apple Inc. (NASDAQ:AAPL), said this:

It would take some convincing for me to understand why $5 billion is the right number for a project like this.This is rubbing salt in the wound, to spend at a level that most anyone would say is extravagant, at a time when they’re being so stingy on dividends.

He has a point–not so much that Apple’s dividends are stingy, but that Apple could definitely do something more productive with its money. In fact, let’s look at The Walt Disney Company (NYSE:DIS). The entire Disneyland project cost $17 million in 1955, or approximately $134 million in today’s dollars. That’s basically 1/38 of what Apple Inc. (NASDAQ:AAPL) is planning to spend. The Walt Disney Company (NYSE:DIS) currently has approximately $3.7 billion in FCF. In other words, had the company built Disneyland today, it would have spent approximately 3.6% of its FCF on the amusement park — Apple is planning to spend 10.8% of its FCF on the new Cupertino campus.

Interestingly, Google Inc (NASDAQ:GOOG) is planning to develop a $1.6 billion headquarters in the U.K. Even that is a lot of money, but it is still 68% less than Apple plans to spend. This $1.6 billion dollar project would equate to nearly 12% of Google’s FCF levels. I have not heard any reports of shareholders complaining about Google Inc (NASDAQ:GOOG)’s project, despite the company not issuing any dividends. Regardless, both projects are astronomically expensive and may lead to disappointed shareholders.

What value do these companies provide shareholders? Are their stocks as expensive as their plans to build these new projects? With a market cap of over $262 billion, Google Inc (NASDAQ:GOOG)’s FCF yield is 5.1%. Nothing too earth-shattering there. Disney actually appears to be the most expensive among these companies, as it shows a FCF yield of just 3.5%. Despite Apple’s plans to build this project that will cost three times as much as most of New York City’s skyscrapers, their FCF yield is a cheap 11.5%. With Apple’s stock recently falling, it appears to be the cheapest stock of the trio, but it may hold more uncertainty than a company such as Google.

Apple Inc. (NASDAQ:AAPL) shows a “stingy” dividend yield of 2.5%, while Disney’s is approximately 1.3%. Now, its hard to place blame on a company whose stock has increased 22.3% over the past twelve months and nearly 7% YTD, but Google does not issue dividends at all. The chart below will show how these companies earnings yield is just the opposite of their P/E. Typically, the higher the P/E, the lower the earnings yield.

DIS Earnings Yield data by YCharts

The Foolish bottom line…

Apple Inc. (NASDAQ:AAPL) may have more than enough cash to build a project such as the one described above, but will its shareholders become agitated with its dividends and a falling stock? Apple Inc. (NASDAQ:AAPL) is very cheap, but may need to remove the salt from those that feel wounded by its falling stock and high dividend expectations. Google and Disney are more expensive, but have recently performed better with their stocks, and have spent/are spending less on their projects.

Tyler Wofford has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and Walt Disney. The Motley Fool owns shares of Apple, Google, and Walt Disney.

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