Why Apple Will Do A $200 Billion Cash-Return Program, According To Credit Suisse (AAPL)


Tim Cook iPhone 6

Credit Suisse analyst Kulbinder Garcha is upgrading Apple to "outperform" from "neutral" and slapping a $130 price target on the stock, up from $11o. The stock is currently priced at ~$110.

What's motivating the upgrade? The iPhone business, naturally.

Garcha thinks Apple will sell a boatload of iPhones. Not only that, he's predicting Apple sells a boatload of iPhones with 64 GB of storage, which costs consumers $100 extra, but costs Apple not that much more. The increased sales of 64 GB iPhones will improve Apple's profits and cash flow.

Beyond the iPhone business, Kulbinder believes Apple will increase its cash return program.

In 2013, Apple initiated one of the biggest cash return programs in corporate history, promising to spend $40 billion on dividends and $60 billion on share buybacks by the end of 2015. In 2014, Apple expanded that program further. It increased its buyback plan to $90 billion in 2014, making its total cash return program valued at $130 billion.

Despite Apple's gigantic cash return program, it's on pace to have more cash on hand than when the program started, says Kulbinder. In 2013, when the program started, Apple had $137 billion in cash. Last quarter, Apple had $155 billion in cash.

As a result, Kulbinder thinks Apple will increase its cash return program to an astounding $200 billion over the next three years. He notes that Apple is doing $50 billion a year in free cash flow, so this isn't insane.

To add some context to the $200 billion number, Facebook's market cap is $214 billion. So, Apple would be buying a Facebook. Amazon's market cap is $134 billion. Tesla's market cap is $25 billion. So, Apple would be buying a Tesla and an Amazon.

Here's a chart from Kulbinder on the cash program. If Apple doesn't increase its share repurchase program, cash is going to grow significantly.

Credit Suisse Apple cash chart

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