Apple Inc. (AAPL) Paying Off $38 Billion Cash Tax Hit Is Good Move for 2018 Backdrop

Guggenheim's Rob Cihra is more confident than consensus on AAPL, calling for a strong performance in the fiscal year ahead.


One of the most confident Apple Inc. (NASDAQ:AAPL) bulls is out with a new research report continuing to bank on the success of the tech titan, especially on back of news that the company intends to repatriate cash.

Guggenheim analyst Rob Cihra believe this lends Apple to a 2018 “setup and flexibility” that are “that much cleaner” as the titan plans to shell out $38 billion.

In reaction, the analyst reiterates a Buy rating on AAPL stock with a $215 price target, which implies a 20% upside from current levels. (To watch Cihra’s track record, click here)

Noting that with new reduced rates set at 15.5%, the analyst calculates this translates to an opportunity for Apple to repatriate almost all its whopping over $250 billion in off-shore cash.

“It plans to grow investments in US jobs and suppliers, although we do not see overall capex necessarily higher than the net $15B annual run-rate we already forecast,” explains Cihra, adding: “Apple says it expects to invest over $30B in capital expenditures in the US over the next 5 years, although we estimate that actually only accounting for ~40% of total run-rate capex, with >$10B or 1/3 of US capex earmarked for cloud datacenters. Apple also expects to create >20K new US jobs through hiring at existing campuses and opening a new one initially to house tech support (location TBD), increasing its US employee count by 24% from today.”

“After the $38B cash tax hit and backing out Apple’s $116B in debt, we estimate net cash still >$120B or $24/share and effectively all then being available on-shore, and continuing to grow by >$1/share/quarter,” the analyst comments.

Additionally, the tech titan has its eyes on boosting the size of its Advanced Manufacturing Fund by five, from $1 billion up to $5 billion, a fund kicked off one year prior to bolster what Apple views as “innovative American manufacturers in its supply chain.” This pursues on back of opening projects thus far revealed with Corning in Kentucky, a company making Gorilla Glass, and Finisar in Texas, a company making VCSEL wafers utilized in the new iPhone X’s 3D sensing cameras.

Moving forward, Cihra continues to be more bullish than the Street on the titan’s opportunity in the market, gambling on 40 cents higher for fiscal 2018 expectations and over $1 in his estimates for fiscal 2019 and 2020. The analyst wagers that investors are underrating just how strong Apple’s forthcoming two to three-year iPhone upgrade cycle really is on soaring average selling prices (ASPs), as well as a sustained mix lift from premium-margin Services. Worthy of note, the analyst surmises pointing out that over 40% of Services revenues coupled with over 50% of Services profits stem from the App Store.

TipRanks reveals a strong bullish analyst consensus backing this tech titan, with 21 of 28 analysts in the last 3 months rating a Buy on Apple stock and just 7 maintaining a Hold. The 12-month average price target stands at $194.68, marking a nearly 9% upside from where the stock is currently trading.

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