Oh Poor Apple...

You've lost a ton of value in a short amount of time, and now, even though you're sitting on untold billions, Moody's and S&P snubs you on a AAA debt rating! Even the article appears to feel bad for Apple:

A debt-free balance sheet with more cash than the combined funds of every AAA rated U.S. company failed to win Apple Inc. (AAPL) the bond market’s highest credit grade as the iPhone maker prepares to borrow to enrich shareholders.

That seems a little strange to me, luckily, their reasoning is especially clever:

You have a company that’s in a highly volatile industry that could have up to $50 billion of debt five or six years down the line,” Granovsky, a New York-based analyst at Moody’s, said in a telephone interview. “Just based on that, it didn’t smell like a triple-A.” Moody’s accords Apple its second-highest level of investment grade, Aa1, and S&P ranks the company an equivalent AA+.

I, too, have forsaken modeling and instead, I simply smell stock certificates. However, Apple seems to have some real problems with slowing growth:

Concern that Apple’s pace of sales growth is slowing were reinforced yesterday by a forecast for narrowing gross margins and sales this quarter that may miss analysts’ predictions by as much as $4.9 billion. Apple had its first profit decline in a decade last quarter amid accelerating competition in mobile devices from Samsung Electronics Co.

But, it looks like there's some good news, nobody seems to think that Apple debt will be a bargain despite their new credit ratings:

The average yield on corporate debt in the U.S. ranked higher than junk dropped to a record low 2.69 percent yesterday, according to Bank of America Merrill Lynch index data. Issuers with AA ratings can borrow at rates of less than 2 percent for about 10 years, and Apple may be able to sell debt inexpensively relative to its credit grade.

So, what do you all think? Does this seem right for Apple given their complete meltdown? Or does that huge pile of cash make all of this a little odd?

 
TeddyTheBear:
When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

I think in this case, the cost of debt is cheaper than the cost to repatriate their money. A little sad if you ask me.

US Corporate Tax System FTW?

"My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."
 
mikesswimn:
TeddyTheBear:
When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

I think in this case, the cost of debt is cheaper than the cost to repatriate their money. A little sad if you ask me.

US Corporate Tax System FTW?

Exactly. Besides, cost of debt is always less than the cost of equity.

 
mikesswimn:
TeddyTheBear:

When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

I think in this case, the cost of debt is cheaper than the cost to repatriate their money. A little sad if you ask me.

US Corporate Tax System FTW?

Anyone know how much of apples cash is outside of America?

 
Best Response
justinfo:
mikesswimn:
TeddyTheBear:

When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

I think in this case, the cost of debt is cheaper than the cost to repatriate their money. A little sad if you ask me.

US Corporate Tax System FTW?

Anyone know how much of apples cash is outside of America?

I think everything held by Braeburn Capital is off-shore. So, according to Apple Insider, it looks to be around $130 billion.

"My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."
 
TeddyTheBear:
When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

Cost of debt is always lower than cost of equity, is it not?

MM IB -> Corporate Development -> Strategic Finance
 
SECfinance:
TeddyTheBear:

When cost of debt is cheaper than cost of equity, it makes tons of sense to buy. Investment grade companies have used this to their advantage.

Cost of debt is always lower than cost of equity, is it not?

I mean it depends on how smart management is with buying back shares. I seen companies where management took on debt to buyback shares at high valuations and when the stocks tanked, the money was essentially wasted. Its about using debt to buy at the right price.

Array
 
DCDepository:
Not rating Apple AAA is utter horseshit. They have better books than most of the 50 states, including the ones with AAA ratings. There are mortgage loan portfolios with the highest level rating, for God's sake...

I'm not exactly a big Apple fan and I agree completely. I wonder what Egan Jones has to say? They seem to be on the ball... haha.

"My caddie's chauffeur informs me that a bank is a place where people put money that isn't properly invested."
 
Aspire0904:
They have to come up with something innovative, and fast. Can't see any other way they could recover.

I still don't get why they aren't trying to build out a console gaming / DVR / IPhone as a controller box that can replace Xbox. Never mind the damn watch and tv. They NEED new products to come out.

"Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game." - Donald Trump
 
Aspire0904:

They have to come up with something innovative, and fast. Can't see any other way they could recover.

I don’t understand this logic. Apple is probably going to sell 150 million iPhones and 80 million iPads this year in a weak global economy. Their profits from iPhone alone are larger than the total profits of Google, Amazon, Facebook, and Samsung combined, yet the stock is getting hit like it’s JC Penney or some overleveraged name that is facing the very real prospect of bankruptcy in the near future. It may come as a surprise to finance people who work in Bloomberg/FactSet/Capital IQ, Outlook, PowerPoint, and Excel all day, but the products that Apple makes are quite complicated and require years of development before launch. They shouldn’t speed up launch timelines just because some trader who’s never designed/built anything at scale in his entire life says so.

In the meantime, I’ll take my dividends, buybacks, and cash hoard expansion.

http://www.slate.com/articles/technology/technology/2013/04/ipad_sales_…

 
money money money money:
You're confusing book value with share price. Paying dividends would probably not affect the stock price that much. If anything, I would figure the share price would drop.

I'm not confusing anything. It depends on what the size of the dividend is. Paying dividends is going to be better for Apple's stock than letting cash sit around doing nothing. Ideally the cash would be reinvested, but excessive idle cash for a growth stock is pretty much as bad as it gets.

 

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This to all my hatin' folks seeing me getting guac right now..

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