GO
Loading...

Apple Sends Another Signal Bigger Capital Distribution Is Coming

Sunday, 10 Feb 2013 | 7:09 PM ET
'Optimal Strategy' for Apple's Cash: Brian Marshall
After a conversation with Apple CFO Peter Oppenheimer, ISI's Brian Marshall suggests a capital allocation plan that returns more of the company's $137 billion in cash to shareholders.

Signals out of the ultra-secretive executive suite at Apple increasingly point to an announcement soon of a dividend increase, buyback or another form of capital distribution to shareholders. The latest came from an analyst report Sunday.

"While trying to extract information from AAPL (Apple) management is like squeezing 'water from a rock,' we did speak with AAPL CFO (Peter Oppenheimer) this past Friday and found the conversation helpful," wrote ISI analyst Brian Marshall in a note to clients Sunday. "We touched upon a variety of topics, including capital allocation framework."

(Read More: Apple and Samsung: Frenemies for Life)

After speaking with Oppenheimer, ISI's Marshall recommended back to the company in Sunday's report that it increases its current 3-year allocation plan amount to $60 billion from $45 billion. His plan, which would use 50 percent of the firm's annual free cash flow, puts two-thirds of the cash toward a dividend and the rest to buy back shares.

Marshall's conversation followed a rare press release Thursday from Apple, which came in response to a call from activist investor David Einhorn for the world's largest technology company to issue preferred stock.

Battle Over Apple's Cash Stockpile
Anne Simpson, Calpers, shares her view on Apple's stockpile of cash.

"By early last year, Apple's cash balance had built to a point beyond what we needed to run our business and maintain flexibility to take advantage of strategic opportunities, so we announced a plan to return $45 billion to shareholders over three years," stated the company in response to Einhorn. "Apple's management team and Board of Directors have been in active discussions about returning additional cash to shareholders."

(Read More: How Einhorn Turned From Apple Advocate to Agitator)

Apple's stock climbed 5 percent last week to $474.98, taking an extra hop following the release of that statement. The shares currently sport a dividend yield of 2.2 percent. Marshall's plan would raise that to 3 percent.

"We are starting to field calls from 'smart money' investors who are building positions in AAPL at current levels based on the belief that: 1) AAPL has already made the transition to a 'value play' from a growth story, and 2) a favorable capital allocation update will be the next catalyst for shares," wrote the analyst, who has a $600 price target on the stock.

(Read More: Apple Pushes Back Against Einhorn Allegations of Cash Hoarding)

Apple's CEO Tim Cook is scheduled to speak at the Goldman Sachs Technology Conference in San Francisco Tuesday.


For the best market insight, catch "Fast Money" weekdays at 5 p.m. ET, and the "Halftime Report" 12 p.m. ET on CNBC. Follow @CNBCMelloy on Twitter.

  Price   Change %Change
AAPL
---