Apple's Repatriation a Plus, but Don't Expect a Windfall

Brian Colello: Apple made a notable announcement this week regarding its contributions to the U.S. economy, the most notable of which for investors and stock-pickers is the company's disclosure of the tax repatriation it's going to pay the U.S. government, to the tune of $38 billion.

This is essentially in line we the math we would calculate on such a deal. If you think about Apple's $252 billion of overseas cash on-hand as of December and a 15.5% tax rate that the company has to pay on that, the $38 billion tax bill isn't particularly surprising.

We're maintaining our $163 fair value estimate and narrow moat rating for Apple based on this news. Again, the higher tax repatriation that they're going to pay the U.S. is essentially offset by lower ongoing taxes in the U.S. that we expect the company to pay going forward.

Now an interesting factor associated with this tax payment is that it allows Apple to bring that overseas cash back into the U.S. For a lot of tech companies investors are expecting huge dividend and buyback increases, because tech companies now have more cash onshore in the U.S. in order to pay out in the form of dividends and buybacks.

We're a little skeptical that Apple's going to exponentially raise either its dividend or buyback. The company's been taking on a lot of debt over the past few years in order to raise its U.S. cash, essentially using that overseas cash as collateral. Thus, the company's been able to pay for dividends and buybacks in the U.S. already over the past few years.

Now, obviously having more cash in the U.S. is a positive, and we certainly expect dividend and buybacks to rise at Apple in light of any growing company quite frankly, but we're hesitant to think that there is a massive windfall coming from this overseas cash coming into the U.S. again. Apple hasn't had much problems raising debt in order to take on dividends or buybacks already.