Munster: The Street is wrong about the timing of Apple’s buybacks

“We expect Apple to be net cash neutral in 3 years, ahead of investor expectations of 5 plus years.” — Loup Ventures’ Gene Munster.

From a note to subscribers posted Wednesday morning:

Apple net cash neutral by FY21. Tim Cook said on the Mar-18 earnings call that Apple will be net cash neutral “over time,” but stopped short of specifying a timeline. Over the next 12 quarters, we expect Apple to return $300B to shareholders and to be net cash neutral by the end of the Mar-21 quarter. This would more than double the current pace of capital returns. Apple has distributed $234B over the previous 6 years. As shown in the table below, we expect Apple to maintain, through the Mar-21 quarter, a capital return pace consistent with the just reported Mar-18 pace of $26.8B per quarter ($23.5B buybacks and $3.3B in dividends). This would be made up of about $21B to $22B in share buybacks and cash paid for dividends of $3.4B to $3.7B quarterly. We’re modeling for dividends to increase by 5% each year, in line with the percentage increase in FY17.

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My take: For investors, this means—according to Munster’s calculations—that Apple’s share price should move 24% higher over the next three years on buybacks alone.