Offshore Cash Repatriation, And The Bull Case For Apple

Trump's proposed corporate tax overhaul might should sound music to the ears of Apple Inc. AAPL shareholders, a note released by Pacific Crest on Thursday implied.

Analysts Andy Hargreaves, Evan Wingren and Tyler Parker sees the likely repatriation of offshore profits, if the tax reform allows it at a reduced tax rate, to be a bull case for Apple. The analysts believe the repatriation could dramatically increase Apple's dividend yield, which in turn could lead to meaningful stock appreciation just as it has happened with International Business Machines Corp. IBM in the past.

The appreciation, according to the analysts, would come even if the next iPhone cycle was poor. The analysts sees the possibility of the dividend yield doubling or tripling.

AAPL Source: Y Charts

Repatriated Profits Could Help Fund M&A

Pacific Crest also believes the additional cash provided by the repatriation could allow Apple to pursue meaningful acquisition without impairing its balance sheet. The firm sees the company making acquisitions to boost its services business. This in turn will help a substantial services growth story, which along with a strong cash return multiple would support elevated P/E or EV/EBITDA multiples, the firm added.

Continued Ownership Justified

Despite Apple trading near Pacific Crest's price target of $140, the firm believes its current estimates leave room for upside from stronger-than-expected unit volume or gross profit per phone in the coming iPhone cycle. According to the firm, this along with the potential for upside associated with higher cash returns in a repatriation scenario justify continued ownership of Apple.

Pacific Crest has an Overweight rating on shares of Apple, with a $150 price target.

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