After crushing analyst expectations with your earnings and becoming the largest company by market cap in the world, what does Apple do next?
How about paying a dividend?
Sanford C. Bernstein analyst Toni Sacconaghi said Apple is "dramatically underowned relative to its peers" by institutional and value fund investors because it is sitting on $97.6 billion in cash.
Apple "would get a whole new group of investors if you returned some of that cash," he said.
Late Tuesday, Apple reported earnings of $13.87 a share, double analyst expectations, thanks to booming sales of iPads and iPhones.
Its market capof $417 billion "is deserved," he said. "This is a company that’s going to generate over $40 billion in earnings this year, so its earnings multiple is about 10 times earnings, which is very reasonable."
And that's only the start. He sees continued growth from the Asia-Pacific region, which was down in the last quarter because of the delayed introduction of the iPhone 4s in China. Even if phones are sold there at much lower price points, “we're still talking about a very significant market” for smartphones, Sacconaghi said.
Should Apple use some of that cash to buy a supplier? Glen Yeung, a semiconductor analyst at Citigroup, said in a separate interview that it wouldn't make sense of Apple to buy Broadcom, for instance, since Apple buys only 10 percent of the company's chips. Buy Broadcom and the company will lose 90 percent of its business because customers aren't going to want to buy chips from Apple, Yeung said.
"So financially it won't make a lot of sense," he said.
He also doesn't anticipate other companies in his coverage universe — Qualcomm and Texas Instruments, for instance — to be targets either.
Mike Abramsky, a managing director at RBC Capital Markets, likened Apple to a "tsunami" because of its large valuation and cash pile. He said he isn't sure if Apple will try to move from tablets and smartphones into television, but he said whatever it does the company will "continue to surprise" under new CEO Tim Cook.
"Tim and the team will have their own approach," he said. "The company has some big flywheels established by Steve [Jobs] and his team, and that will continue."
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Disclosure information was not available for Toni Sacconaghi or his company. Mike Abramsky owns no Apple shares, but RBC Capital Market does. Glen Yeung does not own shares in the companies he mentioned, but Citigroup has investment banking relationships with Advanced Micro Devices, Broadcom, Qualcomm, and Texas Instruments. No information was given on Apple.