Steven Milunovich, Analyst, UBS
Here’s an analyst that see’s it the way I do. I like the editors comment, the fizzle before the sizzle. Mr. Milunovich thinks Apple is too cheap. Whoa! This is where I part ways, but not because he thinks it’s too cheap, rather that he think investors care that Apple is too cheap or not. They care about one thing, whether it is going up or down a shitload. Watching all these analysts figuring their numbers, carrying the not not, double not, and most of them hardly ever agree. The variance is huge.
Jethro Bodine doin sum figerin
Steve is like Toni Sacconaghi in that he too believes Apple should take on debt in order to make payouts to shareholders more palatable. Interest is tax deductible I guess is the reasoning. I say the money is better spent on investments. That would also be tax deductible and you’d have something to show for it. Am I wrong?
UBS‘s Steve Milunovich this morning reiterates a Buy rating on Apple shares and a $560 price target, writing that the current slump is the “fizzle before the sizzle,” as he sees it, the sizzle in this case being the prospect for multiple new product introductions in the second half of the year, such as an “iPhone 5S” and a lower-cost iPhone.
But his real focus is the prospect for return of cash to shareholders, and Street estimates that he believes are still too high for last quarter and this quarter.
He’s modeling Q2 revenue of $42.16 billion and EPS of $9.66. For Q3, he expects the outlook to be disappointing. He’s modeling $38.4 billion and $8.63 per share.
Milunovich thinks the stock is too cheap if Apple makes a significant boost in shareholder payouts:
Apple might increase its three-year shareholder return commitment from $45bn to $65bn or more, possibly aided by the issuance of low cost debt. At current levels, $10bn in additional share repurchase or $20bn total over three years would be 5% accretive to our estimates and a $2-5bn dividend increase would lift the stock’s indicative yield from 2.5% to 3.0% or 45% above the Russell 1000. For now, our base case valuation and estimates do not factor a significant change in capital stewardship. We think such actions could quickly re-rate shares positively by 10-15%. Observing the option implied dividend stream, we think the market is underpricing the potential near-term boost in the dividend at only ~15% growth or $3.05 per share quarterly. Longer-dated options imply a more sizable dividend growth rate of ~35% in F2014 though still below our base case assumptions on a cumulative basis. Our more bullish expectations also factor a doubling of the current buyback authorization to $20bn, effectively reducing the cost of dividend growth through share accretion.