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2022-12-17
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Tesla: Potential 38.6% Annualized Return
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2022-12-07
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TSLA can provide an excellent return from the covered call premium even if the stock does not move much.</p><h2>Tesla</h2><p>Global deliveries in 2021 were a little over 936,000 units. The 2021 breakdown of Tesla's total revenues by country were U.S. (44.5%), China (25.7%), and Other (29.8%). Tesla has ambitious growth plans, but the output may be restricted by global semiconductor shortages and supply chain issues, at least in the near term.</p><p>Its stores do not carry extensive inventories, and many customers choose to customize their vehicles. Tesla has four reportable segments: Automotive sales (84.7% of total 2021 revenues), Automotive Leasing (3.1%), Services & Other (7.1%), and Energy Generation & Storage (5.2%).</p><p>TSLA has annual sales of $74.8B with 99.3K employees. They are 44.7% owned by institutions, with 3.0% short interest. Their return on equity is 28.1%, and they have a 25.0% return on invested capital. The free cash flow yield per share is 1.6%, and their buyback yield per share is 0.0%. Their Piotroski F-score is eight, indicating strength. They have a price-to-book ratio of 12.5.</p><h2>Potential Positive Impacts For 2023</h2><ol><li>Tesla is expanding their product offerings. The first deliveries of the Semi were achieved on December 1, 2022, which should be followed by the Cybertruck (late 2023), Roadster, and Optimus robot. The Cybertruck is believed to have reservations of more than 1.5 million. Eventually, Tesla will roll out more affordable sedans and SUV platforms in the coming years.</li><li>Tesla recently opened new plants in Texas and Germany.</li><li>TSLA is a big winner from the Inflation Reduction Act, as most versions of the industry's two best-selling EVs (the Model Y and Model 3) will probably become eligible for the $7,500 federal EV tax credit, effective January 1, 2023.</li><li>Tesla continually plans to reduce battery costs and boost vehicle range.</li><li>China will reopen eventually.</li><li>Gas prices are higher.</li><li>Tesla has virtually no debt and continues to spend little to nothing on advertising.</li></ol><h2>Potential Negative Impacts For 2023</h2><ol><li>Big automakers are introducing more and more EV vehicles at lower prices.</li><li>A recession may temporarily reduce sales.</li><li>Higher interest rates may temporarily reduce sales.</li><li>Global semiconductor shortages and supply chain issues are improving, but the output may still be restricted.</li><li>Elon Musk has sold over $23 billion in stock this year, presumably to fund Twitter, and he may sell more shares. (The Twitter impact on Tesla will probably fade, especially if a Twitter CEO is announced.)</li><li>TSLA stock ownership is about 44% institutions, 16% insiders, and 40% retail investors, any of whom may not hold shares waiting for a rebound.</li><li>Higher raw material, logistics, labor, and warranty costs may continue to be a headwind.</li></ol><h2>Q3 Quarterly Results</h2><p>TSLA announced record Q3 earnings in their October 19th press release.</p><ul><li>Production of 365K vehicles</li><li>Delivery of 343K vehicles</li><li>Operating cash flow less Capex (free cash flow) was $3.3B</li><li>Cash and marketable securities increased by $2.2B to $21.1B</li><li>Operating margin was 17.2%</li><li>Revenue grew 56% vs. last year</li></ul><p>Musk mentioned the following about growth on the conference call.</p><blockquote>Actually, one caveat, I should say, is growing production by 50% every year because of deliveries -- we're trying to smooth out the deliveries and not have this crazy delivery rate at the end of every quarter, so. In fact, we're just fundamentally running out of -- there weren't enough boats, there weren't enough trains, there weren't enough car carriers to actually support the wave because it got too big. So, whether we like it or not, we actually have to smooth out the delivery of cars intra-quarter because there aren't just enough transportation objects to move them around.</blockquote><p>Musk responded to questions about the product.</p><blockquote>So, we'll be handing over our first production Tesla Semis to Pepsi on December 1. I'll be there in person.</blockquote><blockquote>Yes, exactly; very important, no sacrifice to cargo capacity, 500-mile range. To be clear, 500 miles with the cargo. Yes, 500 miles with the cargo on level ground. Yes, sure. Not up. It's excellent. But the point is, it's a long-range truck and even with heavy cargo. And the number of times people tell, no, you can't -- it's impossible to make a long-range heavy-duty Class A truck. And then, I'll ask, well, what are your assumptions about what hour kilogram and what hours per mile, and they look at me with a blank stare and then say hydrogen. I'm like, no, that's not the answer; I was looking for numbers, literally. It's not a number. It's [indiscernible] table. You obviously don't need hydrogen for heavy trucks.</blockquote><blockquote>And we'll be ramping up Semi production through next year. As I think everyone knows at this point, it takes about a year to ramp up production. So, we expect to see significant -- we're tentatively aiming for 50,000 units in 2024 for Tesla Semi in North America. And obviously, we'll expand beyond North America. And these would sell -- I don't want to say the exact prices, but they're much more than a passenger vehicle. So, with a few thousand heavy trucks of this nature, it would be worth several Model Ys.</blockquote><p>The 50,000-unit forecast for 2024 seems too aggressive. I suspect TSLA will trade above $160.00 in the next year or two, even if the truck forecast is too aggressive.</p><h2>Good Technical Entry Point</h2><p>The share price of TSLA traded at $158.00 on December 15th. I've added the green Fibonacci lines, using the high and low of the past five years for TSLA. It's interesting to note how the market pauses or bounces off these Fibonacci lines. They can be one clue as to where the stock price may be headed. TSLA is slightly below the 38.2% Fibonacci retracement level but could go lower. However, I believe that TSLA will trade above $160.00 by June for the reasons in this article.</p><p></p><p><img src=\"https://static.tigerbbs.com/d4d74a16eaf31e58b529a1b8c50655de\" tg-width=\"640\" tg-height=\"306\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>Schwab StreetSmart Edge</p><p>The fifteen most accurate analysts have an average one-year price target of $288.43, indicating an 82.5% potential upside from the December 15th trading price of $158.00 if they are correct. Their ratings are ten buys, four holds, and one sell. Analysts are just one of my indicators, and they are not perfect, but they are usually in the ballpark with estimates or at least headed in the right direction. They often seem a bit optimistic, so I suspect prices may end up lower than their one-year targets to be on the safe side.</p><h2>Trends In Earnings Per Share, P/E Ratio, And Operating Margin</h2><p>The black line shows TSLA's stock price for the past twelve years. Look at the chart of numbers below the graph to see that TSLA adjusted earnings were $0.00 in 2019, $0.75 in 2020, and $2.26 in 2021. They are projected to earn $4.10 in 2022, $5.75 in 2023, and $6.91 in 2024.</p><p>The P/E ratio for TSLA is currently very high. If TSLA earns $6.91 in 2024, the stock could trade at $160.00 if the market assigns a 23.1 P/E ratio. Tesla's growth rate is so strong that it would not surprise me to see TSLA trading above $160.00 a year or two from now.</p><p><img src=\"https://static.tigerbbs.com/4d13a6319189ad952ac60082b701f502\" tg-width=\"640\" tg-height=\"335\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/>FastGraphs.com</p><p>TSLA's operating margin has been increasing for the past five years.</p><p><img src=\"https://static.seekingalpha.com/uploads/2022/12/15/737809-167112985977127.png\" tg-width=\"640\" tg-height=\"300\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>StockRover.com</p><p>The stock price has not yet caught up with the increasing sales and EPS.</p><p><img src=\"https://static.tigerbbs.com/c5e35f969fef71b655da5962d71daf93\" tg-width=\"640\" tg-height=\"293\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>StockRover.com</p><h2><b>Sell Covered Calls</b></h2><p>My answer to uncertainty is to sell covered calls on TSLA six months out. TSLA traded at $158.00 on December 15th, and June's $160.00 covered calls are at or near $28.60. One covered call requires 100 shares of stock to be purchased. The stock will be called away if it trades above $160.00 on June 16th. It may even be called away sooner if the price exceeds $160.00, but that's fine since capital is returned sooner.</p><p>The investor can earn $2,860 from call premium and $200 from stock price appreciation. This totals $3,060 in estimated profit on a $15,800 investment, which is a 38.6% annualized return since the period is 183 days.</p><p>If the stock is below $160.00 on June 16th, investors will still make a profit on this trade down to the net stock price of $129.40. Selling covered calls reduces your risk.</p><h2>Takeaway</h2><p>TSLA should see higher stock prices due to expanded product offerings and production capacity, plus a possible $7,500 incentive. Even if TSLA's stock price only moves from $158.00 to $160.00 by June 16th, a 38.6% potential annualized return is possible, including the covered call premium.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Tesla: Potential 38.6% Annualized Return</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTesla: Potential 38.6% Annualized Return\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-12-17 11:49 GMT+8 <a href=https://seekingalpha.com/article/4564906-tesla-potential-38-6-percent-annualized-return><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryTesla is expanding their product offerings.There are numerous potential positive and negative impacts for 2023.The Inflation Reduction Act may provide a $7,500 incentive on some vehicles ...</p>\n\n<a href=\"https://seekingalpha.com/article/4564906-tesla-potential-38-6-percent-annualized-return\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"TSLA":"特斯拉"},"source_url":"https://seekingalpha.com/article/4564906-tesla-potential-38-6-percent-annualized-return","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2292004292","content_text":"SummaryTesla is expanding their product offerings.There are numerous potential positive and negative impacts for 2023.The Inflation Reduction Act may provide a $7,500 incentive on some vehicles beginning on 1/1/23.Investment ThesisTesla (NASDAQ:TSLA) should see higher stock prices due to expanded product offerings and production capacity, plus a possible $7,500 incentive. TSLA can provide an excellent return from the covered call premium even if the stock does not move much.TeslaGlobal deliveries in 2021 were a little over 936,000 units. The 2021 breakdown of Tesla's total revenues by country were U.S. (44.5%), China (25.7%), and Other (29.8%). Tesla has ambitious growth plans, but the output may be restricted by global semiconductor shortages and supply chain issues, at least in the near term.Its stores do not carry extensive inventories, and many customers choose to customize their vehicles. Tesla has four reportable segments: Automotive sales (84.7% of total 2021 revenues), Automotive Leasing (3.1%), Services & Other (7.1%), and Energy Generation & Storage (5.2%).TSLA has annual sales of $74.8B with 99.3K employees. They are 44.7% owned by institutions, with 3.0% short interest. Their return on equity is 28.1%, and they have a 25.0% return on invested capital. The free cash flow yield per share is 1.6%, and their buyback yield per share is 0.0%. Their Piotroski F-score is eight, indicating strength. They have a price-to-book ratio of 12.5.Potential Positive Impacts For 2023Tesla is expanding their product offerings. The first deliveries of the Semi were achieved on December 1, 2022, which should be followed by the Cybertruck (late 2023), Roadster, and Optimus robot. The Cybertruck is believed to have reservations of more than 1.5 million. Eventually, Tesla will roll out more affordable sedans and SUV platforms in the coming years.Tesla recently opened new plants in Texas and Germany.TSLA is a big winner from the Inflation Reduction Act, as most versions of the industry's two best-selling EVs (the Model Y and Model 3) will probably become eligible for the $7,500 federal EV tax credit, effective January 1, 2023.Tesla continually plans to reduce battery costs and boost vehicle range.China will reopen eventually.Gas prices are higher.Tesla has virtually no debt and continues to spend little to nothing on advertising.Potential Negative Impacts For 2023Big automakers are introducing more and more EV vehicles at lower prices.A recession may temporarily reduce sales.Higher interest rates may temporarily reduce sales.Global semiconductor shortages and supply chain issues are improving, but the output may still be restricted.Elon Musk has sold over $23 billion in stock this year, presumably to fund Twitter, and he may sell more shares. (The Twitter impact on Tesla will probably fade, especially if a Twitter CEO is announced.)TSLA stock ownership is about 44% institutions, 16% insiders, and 40% retail investors, any of whom may not hold shares waiting for a rebound.Higher raw material, logistics, labor, and warranty costs may continue to be a headwind.Q3 Quarterly ResultsTSLA announced record Q3 earnings in their October 19th press release.Production of 365K vehiclesDelivery of 343K vehiclesOperating cash flow less Capex (free cash flow) was $3.3BCash and marketable securities increased by $2.2B to $21.1BOperating margin was 17.2%Revenue grew 56% vs. last yearMusk mentioned the following about growth on the conference call.Actually, one caveat, I should say, is growing production by 50% every year because of deliveries -- we're trying to smooth out the deliveries and not have this crazy delivery rate at the end of every quarter, so. In fact, we're just fundamentally running out of -- there weren't enough boats, there weren't enough trains, there weren't enough car carriers to actually support the wave because it got too big. So, whether we like it or not, we actually have to smooth out the delivery of cars intra-quarter because there aren't just enough transportation objects to move them around.Musk responded to questions about the product.So, we'll be handing over our first production Tesla Semis to Pepsi on December 1. I'll be there in person.Yes, exactly; very important, no sacrifice to cargo capacity, 500-mile range. To be clear, 500 miles with the cargo. Yes, 500 miles with the cargo on level ground. Yes, sure. Not up. It's excellent. But the point is, it's a long-range truck and even with heavy cargo. And the number of times people tell, no, you can't -- it's impossible to make a long-range heavy-duty Class A truck. And then, I'll ask, well, what are your assumptions about what hour kilogram and what hours per mile, and they look at me with a blank stare and then say hydrogen. I'm like, no, that's not the answer; I was looking for numbers, literally. It's not a number. It's [indiscernible] table. You obviously don't need hydrogen for heavy trucks.And we'll be ramping up Semi production through next year. As I think everyone knows at this point, it takes about a year to ramp up production. So, we expect to see significant -- we're tentatively aiming for 50,000 units in 2024 for Tesla Semi in North America. And obviously, we'll expand beyond North America. And these would sell -- I don't want to say the exact prices, but they're much more than a passenger vehicle. So, with a few thousand heavy trucks of this nature, it would be worth several Model Ys.The 50,000-unit forecast for 2024 seems too aggressive. I suspect TSLA will trade above $160.00 in the next year or two, even if the truck forecast is too aggressive.Good Technical Entry PointThe share price of TSLA traded at $158.00 on December 15th. I've added the green Fibonacci lines, using the high and low of the past five years for TSLA. It's interesting to note how the market pauses or bounces off these Fibonacci lines. They can be one clue as to where the stock price may be headed. TSLA is slightly below the 38.2% Fibonacci retracement level but could go lower. However, I believe that TSLA will trade above $160.00 by June for the reasons in this article.Schwab StreetSmart EdgeThe fifteen most accurate analysts have an average one-year price target of $288.43, indicating an 82.5% potential upside from the December 15th trading price of $158.00 if they are correct. Their ratings are ten buys, four holds, and one sell. Analysts are just one of my indicators, and they are not perfect, but they are usually in the ballpark with estimates or at least headed in the right direction. They often seem a bit optimistic, so I suspect prices may end up lower than their one-year targets to be on the safe side.Trends In Earnings Per Share, P/E Ratio, And Operating MarginThe black line shows TSLA's stock price for the past twelve years. Look at the chart of numbers below the graph to see that TSLA adjusted earnings were $0.00 in 2019, $0.75 in 2020, and $2.26 in 2021. They are projected to earn $4.10 in 2022, $5.75 in 2023, and $6.91 in 2024.The P/E ratio for TSLA is currently very high. If TSLA earns $6.91 in 2024, the stock could trade at $160.00 if the market assigns a 23.1 P/E ratio. Tesla's growth rate is so strong that it would not surprise me to see TSLA trading above $160.00 a year or two from now.FastGraphs.comTSLA's operating margin has been increasing for the past five years.StockRover.comThe stock price has not yet caught up with the increasing sales and EPS.StockRover.comSell Covered CallsMy answer to uncertainty is to sell covered calls on TSLA six months out. TSLA traded at $158.00 on December 15th, and June's $160.00 covered calls are at or near $28.60. One covered call requires 100 shares of stock to be purchased. The stock will be called away if it trades above $160.00 on June 16th. It may even be called away sooner if the price exceeds $160.00, but that's fine since capital is returned sooner.The investor can earn $2,860 from call premium and $200 from stock price appreciation. This totals $3,060 in estimated profit on a $15,800 investment, which is a 38.6% annualized return since the period is 183 days.If the stock is below $160.00 on June 16th, investors will still make a profit on this trade down to the net stock price of $129.40. Selling covered calls reduces your risk.TakeawayTSLA should see higher stock prices due to expanded product offerings and production capacity, plus a possible $7,500 incentive. Even if TSLA's stock price only moves from $158.00 to $160.00 by June 16th, a 38.6% potential annualized return is possible, including the covered call premium.","news_type":1},"isVote":1,"tweetType":1,"viewCount":131,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":9920016780,"gmtCreate":1670392460440,"gmtModify":1676538359235,"author":{"id":"4127676027847602","authorId":"4127676027847602","name":"hoong soo","avatar":"https://static.laohu8.com/default-avatar.jpg","crmLevel":2,"crmLevelSwitch":0},"themes":[],"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9920016780","repostId":"2289102464","repostType":4,"isVote":1,"tweetType":1,"viewCount":45,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"hots":[{"id":9928660317,"gmtCreate":1671263180640,"gmtModify":1676538517514,"author":{"id":"4127676027847602","authorId":"4127676027847602","name":"hoong soo","avatar":"https://static.laohu8.com/default-avatar.jpg","crmLevel":2,"crmLevelSwitch":0},"themes":[],"htmlText":"Thanks","listText":"Thanks","text":"Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9928660317","repostId":"2292004292","repostType":4,"isVote":1,"tweetType":1,"viewCount":131,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0},{"id":9920016780,"gmtCreate":1670392460440,"gmtModify":1676538359235,"author":{"id":"4127676027847602","authorId":"4127676027847602","name":"hoong soo","avatar":"https://static.laohu8.com/default-avatar.jpg","crmLevel":2,"crmLevelSwitch":0},"themes":[],"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9920016780","repostId":"2289102464","repostType":4,"repost":{"id":"2289102464","pubTimestamp":1670383668,"share":"https://www.laohu8.com/m/news/2289102464?lang=&edition=full","pubTime":"2022-12-07 11:27","market":"us","language":"en","title":"Apple: Why Buybacks Won't Stop Once It Reaches Cash Neutrality","url":"https://stock-news.laohu8.com/highlight/detail?id=2289102464","media":"Seeking Alpha","summary":"SummaryApple wants to become cash neutral.To do so, it is returning excess cash through buybacks and","content":"<html><head></head><body><p>Summary</p><ul><li>Apple wants to become cash neutral.</li><li>To do so, it is returning excess cash through buybacks and dividends.</li><li>In this article, we will understand what will happen to shareholder returns once the goal is achieved.</li></ul><h2>Introduction</h2><p>One of the issues <a href=\"https://laohu8.com/S/AAPL\">Apple</a> has to face may actually seem a non-existent one: the company has long had more cash, after funding its operations and its investments, than it knows what to do with. What kind of problem is this, one may ask? Well, by sitting on idle mass of liquidity that isn't used is actually a cost both in terms of management and in terms of loss of purchasing power due to inflation. In addition, Apple had most of its cash outside the U.S. in its foreign subsidiaries and it kept it there in order to avoid repatriation taxes. When the tax reform was approved with the 15.5% repatriation tax rate, Apple started to repatriate $250 billion. This was reported in early 2018. Soon thereafter, Apple disclosed that it would become a cash neutral company.</p><p>In this article, I would like to go over the idea of cash neutrality for those who haven't yet heard of it and I would like to link this strategy to see how, once it is achieved, it will impact the company's huge buybacks.</p><h2>What is cash neutrality?</h2><p>During the Q1 2018 earnings call, Luca Maestri, Apple's CFO, first announced that the company was targeting cash neutrality. These are his words:</p><blockquote>Tax reform will allow us to pursue a more optimal capital structure for our company. Our current net cash position is $163 billion. And given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral over time. We will provide an update to our specific capital allocation plans when we report results for our second fiscal quarter, consistent with the timing of updates that we have provided in the past.</blockquote><p>Though the idea is very simple, not everyone participating in the earnings call seemed to understand it well and this led Tim Cook to a further explanation:</p><blockquote>What Luca is saying is not cash equals zero. He's saying there's an equal amount cash and debt, and that they balance to zero. Just for clarity.</blockquote><p>Now it is clear: cash neutrality means that the net debt position is equal to zero, where cash and debt balance each other. If a company has excess cash, it can reach cash neutrality in two ways: it either lowers its available cash or it raises debt.</p><p>Of course, Apple saw the tax reform as a big opportunity that gave new flexibility thanks to the access to the foreign cash. Before the reform, in fact, Apple used to raise debt to have more available cash in the U.S. as the majority of the cash was overseas. At the beginning of 2018, Apple had $285 billion of cash and $122 billion of debt for a net cash position of $163 billion. Since then the company has been able to deploy this capital. Luca Maestri explained how the company would be in no rush to use all this new available cash at one:</p><blockquote>We will do that overtime, because the amount is very large. As I said earlier, we will be discussing capital allocation plans when we review our March quarter results. And when you look at our track record of what we’ve done over the last several years, you’ve seen that effectively we were returning to our investors essentially about 100% of our free cash flow. And so that is the approach that we’re going to be taking. We’re going to be very thoughtful and deliberate about it. Obviously, we want to make the right decisions in the best interest of our long-term shareholders.</blockquote><p>However, one thing was clear: excess cash will be returned to the shareholders. It is actually what we learn in business school: only cash that can't be deployed at a high rate of return should be returned to the shareholders in order to make them decide how to deploy it.</p><p>In the following earnings call for Q2 2018, Luca Maestri addressed once again what Apple was thinking about its use of capital:</p><blockquote>The biggest priorities for our cash have not changed over the years. We want to maintain the cash we need to fund our day-to-day operations, to invest in our future, and to provide flexibility so that we can respond effectively to the strategic opportunities we encounter along the way. As we said 90 days ago, the new tax legislation enacted in December gives us increased financial and operational flexibility from the access to our global cash. It allows us to invest for growth in the United States more efficiently and it also provides us the opportunity to work towards a more optimal capital structure. As we said in February, our goal is to become approximately net cash neutral over time.</blockquote><p>In this way, he made it clear that Apple will keep for itself all the cash it needs not only to operate but also to invest and keep on growing. Let's put it in another way: Apple will fund its operations with its own cash, without using a lot of debt. From these words it is now clearer that Apple will reach cash neutrality mostly by lowering its cash rather than increasing its debt.</p><p>The company could actually raise more debt without many problems because it could simultaneously make some investments that could return an interest income able to completely offset debt interest. However, this doesn't seem the way Apple wants to take.</p><p>So, how has Apple used its excess cash in these years? The answer is quite simple: share repurchases have been the preferred use of cash, followed by the dividend. In the graph below I wanted to show this starting from 2017, the year before Apple announced its strategy.</p><p></p><p><img src=\"https://static.tigerbbs.com/162d9275fec30efad34d606d47c71977\" tg-width=\"640\" tg-height=\"295\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>Author, with data from Seeking Alpha</p><p></p><p>As we can see, Apple more than doubles its share repurchases moving up from $34.77 billion in 2017 to $75.27 billion in 2018. Since then, the company has spent $409 billion just to repurchase its outstanding shares. This has allowed the company to be rather flat in the amount of dividends it is paying. As we can see, in 2018 the company spent $13.71 billion, in 2019 it spent $14.12 billion and in the past year it was just at $14.84. However, Apple's five-year dividend growth rate is above 8% and this is thanks to the massive share repurchases the company has done.</p><h2>Concerns</h2><p>Some investors are concerned that once Apple will have achieved cash neutrality, its share repurchase program will end or will significantly decrease, causing downward pressure on the stock. However, who fears this forgets that Apple generates an in-pouring flow of free cash flow that is actually growing at a very fast pace actually doubling in the past five years ($41 billion in 2017, $92 billion in 2022).</p><h2>When Apple reaches cash neutrality, it will have to increase buybacks once again</h2><p>I ran a simulation which assumes that in the next five years, Apple will grow its free cash flow by 10% and will increase its share repurchases by 7.7% annually. In the meantime, it will increase its dividend growth by 5% and will increase its debt by 4%. Based on these assumptions, Apple should reach a positive net debt position between 2025 and 2026. However, take a look at what happens in 2027. I also assumed that shares will appreciate 10% annually in order to estimate how many outstanding shares the company will be able to repurchase through its buybacks.</p><p></p><p><img src=\"https://static.tigerbbs.com/72d3d6504d2e65f45c253aa30ddf8352\" tg-width=\"640\" tg-height=\"234\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>Author</p><p>Let's use a graph instead a table. We see that at this pace, Apple will reach cash neutrality in 2025 but in just two years it will be heading back to where it came from: excess cash.</p><p></p><p><img src=\"https://static.tigerbbs.com/6266070eb486ebc7b4588c796ff9df72\" tg-width=\"640\" tg-height=\"386\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\"/></p><p>Author forecast</p><p>So, what will the company have to do in order to keep its cash neutral position? According to its culture, it will have to increase once again share repurchases and its dividends.</p><p>The reason is simple: Apple's free cash flow is massive and it can really grow by 10% a year. This will keep on creating a massive amount of liquidity that Apple has to return to its shareholders, which will happily receive it.</p><p>Of course, these are estimates based on many assumptions. But I think the trajectory is quite clear and foreseeable.</p><p>This is why I am not worried, but I am actually pleased by the endeavor Apple has undertaken to reach cash neutrality. It is, in my opinion, another sign of how highly efficient this company is, making it a true cornerstone of my portfolio.</p><h2>Conclusion</h2><p>This article ideally follows another one I recently published to show how Apple is managing its balance sheet with carefulness and attention, making it more efficient than other big tech companies such as Google (GOOG) (GOOGL). For those interested in reading why I started looking at Apple's buyback, I suggest reading this article "The Issue That Google Has And Apple Doesn't". I think it is very helpful for investors to understand whether or not they are holding a well-managed company because a strong balance sheet is a fortress against any downturns.</p></body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Apple: Why Buybacks Won't Stop Once It Reaches Cash Neutrality</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nApple: Why Buybacks Won't Stop Once It Reaches Cash Neutrality\n</h2>\n\n<h4 class=\"meta\">\n\n\n2022-12-07 11:27 GMT+8 <a href=https://seekingalpha.com/article/4562819-apple-why-buybacks-wont-stop-once-cash-neutral><strong>Seeking Alpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryApple wants to become cash neutral.To do so, it is returning excess cash through buybacks and dividends.In this article, we will understand what will happen to shareholder returns once the goal...</p>\n\n<a href=\"https://seekingalpha.com/article/4562819-apple-why-buybacks-wont-stop-once-cash-neutral\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"AAPL":"苹果"},"source_url":"https://seekingalpha.com/article/4562819-apple-why-buybacks-wont-stop-once-cash-neutral","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2289102464","content_text":"SummaryApple wants to become cash neutral.To do so, it is returning excess cash through buybacks and dividends.In this article, we will understand what will happen to shareholder returns once the goal is achieved.IntroductionOne of the issues Apple has to face may actually seem a non-existent one: the company has long had more cash, after funding its operations and its investments, than it knows what to do with. What kind of problem is this, one may ask? Well, by sitting on idle mass of liquidity that isn't used is actually a cost both in terms of management and in terms of loss of purchasing power due to inflation. In addition, Apple had most of its cash outside the U.S. in its foreign subsidiaries and it kept it there in order to avoid repatriation taxes. When the tax reform was approved with the 15.5% repatriation tax rate, Apple started to repatriate $250 billion. This was reported in early 2018. Soon thereafter, Apple disclosed that it would become a cash neutral company.In this article, I would like to go over the idea of cash neutrality for those who haven't yet heard of it and I would like to link this strategy to see how, once it is achieved, it will impact the company's huge buybacks.What is cash neutrality?During the Q1 2018 earnings call, Luca Maestri, Apple's CFO, first announced that the company was targeting cash neutrality. These are his words:Tax reform will allow us to pursue a more optimal capital structure for our company. Our current net cash position is $163 billion. And given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral over time. We will provide an update to our specific capital allocation plans when we report results for our second fiscal quarter, consistent with the timing of updates that we have provided in the past.Though the idea is very simple, not everyone participating in the earnings call seemed to understand it well and this led Tim Cook to a further explanation:What Luca is saying is not cash equals zero. He's saying there's an equal amount cash and debt, and that they balance to zero. Just for clarity.Now it is clear: cash neutrality means that the net debt position is equal to zero, where cash and debt balance each other. If a company has excess cash, it can reach cash neutrality in two ways: it either lowers its available cash or it raises debt.Of course, Apple saw the tax reform as a big opportunity that gave new flexibility thanks to the access to the foreign cash. Before the reform, in fact, Apple used to raise debt to have more available cash in the U.S. as the majority of the cash was overseas. At the beginning of 2018, Apple had $285 billion of cash and $122 billion of debt for a net cash position of $163 billion. Since then the company has been able to deploy this capital. Luca Maestri explained how the company would be in no rush to use all this new available cash at one:We will do that overtime, because the amount is very large. As I said earlier, we will be discussing capital allocation plans when we review our March quarter results. And when you look at our track record of what we’ve done over the last several years, you’ve seen that effectively we were returning to our investors essentially about 100% of our free cash flow. And so that is the approach that we’re going to be taking. We’re going to be very thoughtful and deliberate about it. Obviously, we want to make the right decisions in the best interest of our long-term shareholders.However, one thing was clear: excess cash will be returned to the shareholders. It is actually what we learn in business school: only cash that can't be deployed at a high rate of return should be returned to the shareholders in order to make them decide how to deploy it.In the following earnings call for Q2 2018, Luca Maestri addressed once again what Apple was thinking about its use of capital:The biggest priorities for our cash have not changed over the years. We want to maintain the cash we need to fund our day-to-day operations, to invest in our future, and to provide flexibility so that we can respond effectively to the strategic opportunities we encounter along the way. As we said 90 days ago, the new tax legislation enacted in December gives us increased financial and operational flexibility from the access to our global cash. It allows us to invest for growth in the United States more efficiently and it also provides us the opportunity to work towards a more optimal capital structure. As we said in February, our goal is to become approximately net cash neutral over time.In this way, he made it clear that Apple will keep for itself all the cash it needs not only to operate but also to invest and keep on growing. Let's put it in another way: Apple will fund its operations with its own cash, without using a lot of debt. From these words it is now clearer that Apple will reach cash neutrality mostly by lowering its cash rather than increasing its debt.The company could actually raise more debt without many problems because it could simultaneously make some investments that could return an interest income able to completely offset debt interest. However, this doesn't seem the way Apple wants to take.So, how has Apple used its excess cash in these years? The answer is quite simple: share repurchases have been the preferred use of cash, followed by the dividend. In the graph below I wanted to show this starting from 2017, the year before Apple announced its strategy.Author, with data from Seeking AlphaAs we can see, Apple more than doubles its share repurchases moving up from $34.77 billion in 2017 to $75.27 billion in 2018. Since then, the company has spent $409 billion just to repurchase its outstanding shares. This has allowed the company to be rather flat in the amount of dividends it is paying. As we can see, in 2018 the company spent $13.71 billion, in 2019 it spent $14.12 billion and in the past year it was just at $14.84. However, Apple's five-year dividend growth rate is above 8% and this is thanks to the massive share repurchases the company has done.ConcernsSome investors are concerned that once Apple will have achieved cash neutrality, its share repurchase program will end or will significantly decrease, causing downward pressure on the stock. However, who fears this forgets that Apple generates an in-pouring flow of free cash flow that is actually growing at a very fast pace actually doubling in the past five years ($41 billion in 2017, $92 billion in 2022).When Apple reaches cash neutrality, it will have to increase buybacks once againI ran a simulation which assumes that in the next five years, Apple will grow its free cash flow by 10% and will increase its share repurchases by 7.7% annually. In the meantime, it will increase its dividend growth by 5% and will increase its debt by 4%. Based on these assumptions, Apple should reach a positive net debt position between 2025 and 2026. However, take a look at what happens in 2027. I also assumed that shares will appreciate 10% annually in order to estimate how many outstanding shares the company will be able to repurchase through its buybacks.AuthorLet's use a graph instead a table. We see that at this pace, Apple will reach cash neutrality in 2025 but in just two years it will be heading back to where it came from: excess cash.Author forecastSo, what will the company have to do in order to keep its cash neutral position? According to its culture, it will have to increase once again share repurchases and its dividends.The reason is simple: Apple's free cash flow is massive and it can really grow by 10% a year. This will keep on creating a massive amount of liquidity that Apple has to return to its shareholders, which will happily receive it.Of course, these are estimates based on many assumptions. But I think the trajectory is quite clear and foreseeable.This is why I am not worried, but I am actually pleased by the endeavor Apple has undertaken to reach cash neutrality. It is, in my opinion, another sign of how highly efficient this company is, making it a true cornerstone of my portfolio.ConclusionThis article ideally follows another one I recently published to show how Apple is managing its balance sheet with carefulness and attention, making it more efficient than other big tech companies such as Google (GOOG) (GOOGL). For those interested in reading why I started looking at Apple's buyback, I suggest reading this article \"The Issue That Google Has And Apple Doesn't\". I think it is very helpful for investors to understand whether or not they are holding a well-managed company because a strong balance sheet is a fortress against any downturns.","news_type":1},"isVote":1,"tweetType":1,"viewCount":45,"authorTweetTopStatus":1,"verified":2,"comments":[],"imageCount":0,"langContent":"EN","totalScore":0}],"lives":[]}
