Can Money Buy Apple Love?
Apple (NASDAQ:AAPL) shares fell by as much as 12 percent on Thursday for their biggest percentage drop in more than four years. They were on the downswing again on Friday, and in the middle of the trading day, the company lost its U.S. market value leader title to Exxon Mobil (NYSE:XOM). Investors, disappointed by the company’s earnings results, are clearly not shying away from showing their displeasure, and according to analysts, Apple needs to start taking action to woo them again.
The first step: use its massive cash pile to offer more generous dividends and initiate stock buybacks. Apple currently has cash reserves of $137 billion, which earn about 1 percent annual interest. According to investment specialist Jim Cramer, it is outrageous that Apple has no plans to put the money to work and get shareholders to start loving it again.
“Without a massive dividend boost, a monster buyback … to reanimate the stock, Apple is caught in the brutal process of going from a growth stock to a value stock,” Cramer told CNBC. “That means it has to overshoot to the downside to get to the point where it can bottom.”
While Apple took one step in the right direction last year by instituting a quarterly dividend of $2.65 per share, a fairly high amount in the tech world, it has some way to go before matching up to other companies with similar cash reserves. Nomura Securities analyst Stuart Jeffrey calculated that Apple will generate about another $103 billion over the next three years, but has only committed to returning $45 billion of this total $240 billion to shareholders. “The company needs to change strategically in a number of ways … including in looking after shareholders,” Jeffrey told the Associated Press.
UBS analyst Steven Milunovich agreed. “Tim Cook said that making great products that customers love is the most important thing to Apple,” Milunovich wrote in a research note. “That attitude has created a great company, but one wonders where investors rank. Apple proudly says it has never made an acquisition for revenue; if the company doesn’t see large deals in its future (and perhaps even if it does), there is little excuse not to substantially increase the buyback at these price levels,” the analyst said.
Cramer was more direct, saying the latest share drop was a wakeup call for the management: “Apple’s management needs to realize what everyone else has: that it’s a regular public company like any other, especially since the death of its founder, Steve Jobs. And until it either stops being public or trades through its cash, management is going to have do a much better job of explaining itself.”
Don’t Miss: Your Cheat Sheet to Apple Earnings.