Morgan Stanley Meets with $AAPL CFO, Predicts Higher Dividend

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$AAPLMorgan Stanley analyst Katy Huberty met with Apple CFO Peter Oppenheimer this week, and she walked away from that meeting with some insight on Apple's plans for both its cash and iPhone line.

Ms. Huberty said that Apple could return as much as US$28 billion in cash to shareholders in fiscal 2013, representing a 6 percent yield for shareholders. Doing so, she argued, would, "match the S&P IT sector’s average [free cash flow] payout of 68 percent." The analyst's numbers are based on the fact that Apple's cash hoard increased by $40 billion in fiscal 2012.

She also told her clients that, "a lower priced iPhone makes sense," and said that she saw "several signs" that Apple could release such a device.

The first is that Apple's smaller, cheaper iPad mini has expanded its customer base in China and Brazil. The second is that she believes Chinese customers want to buy a cheaper latest-and-greatest, rather than discounted previous generations. The third is that iPhone 4 surprised to the upside in the December quarter.

"Even at a low 40 percent gross margin and 1/3 cannibalization rate, we see an 'iPhone Mini' as incremental to revenue and gross profit dollars," she concluded.

She reiterated her "Overweight" rating on $AAPL, the equivalent of a "Buy." She also maintained her $630 per share price target.

$AAPL is trading higher as of this writing, at $449.39 per share, up $3.33 (+0.75 percent), on light volume.

Apple's annual shareholder meeting will take place on February 27th. The Mac Observer will be on hand for the event for detailed reporting.

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Katy Huberty is a highly respected analyst in the world of Wall Street. As evidence of this, she is always chosen as one of the analysts who gets to ask Apple CEO Tim Cook and CFO Peter Oppenheimer questions during Apple's quarterly conference calls—it's not all that apparent on the outside, but there are a lot of politics behind the scenes over who gets picked to do so.

There's also the fact that she gets personal meetings with top Apple execs. Her opinion carries a lot of weight, and Apple maintains a solid relationship with her.

But, and you may have already figured there was a "but" coming, Ms. Huberty often asks questions and issues research notes that suggest she's much more aligned with the old school Microsoft model of open licensing when it comes to how she sees the computing-related industry.

For instance, she was a major worry wart about Apple's lack of a netbook in the years leading up to Apple's release of the iPad.

With that in mind, we find her thoughts on Apple returning more cash to shareholders to be of more value than her thoughts on Apple offering up a cheaper iPhone. The reality is that Apple is very likely to bump up its payouts, and we have little doubt that Peter Oppenheimer made that very clear (in his oblique and obfuscated way) in his meeting with Ms. Huberty.

While Apple certainly could also release a cheaper iPhone, she has often expressed her concern about Apple not doing what Samsung does and release a wide-ranging smartphone product line for the sake of market share. This is eerily similar to the way she got worked up about a lack of an Apple netbook, and we know how that worked out.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

wab95

Bryan:

It’s a principle in risk or hazard communication (the business of conveying information about things that pose a risk or potential hazard to the safety, however defined, of the public or target audience, which in this case, would be the investors) that one should bring on board those who are critics of the system or entity that is conveying the risk or hazard, in this case, Apple.

Getting input and questions from persons known to be either critical or opponents to your company, system, products and services, or business model is very smart, and neutralises any potential objection that the company is not being taken to task or is not addressing the hard issues. You want those people on your firing squad coming at you with all the fury and venom they can muster, or at least the hard questions reflecting conventional wisdom and the thoughts and doubts that those not aligned with you may hold. This provides you with an opportunity to take control of the message, and get your response out into the public arena, rather than allowing criticism from doubters, sceptics and opponents to go unanswered (never, ever, a good thing). Taking questions from Katy Huberty, who seems more aligned with the MS strategy, is a very good thing.

That said, it is one thing to respond to hard-nosed, critical and even hostile questions, and even take on board some of these suggestions into one’s operations; it is another to abandon one’s business plan, model or system to adopt that of one’s critics for appeasement’s sake (e.g. adopting the Samsung ‘throw everything at the wall and see what sticks’ model).

Responsiveness and adaptability are signs of strength, power and confidence; appeasement is weakness and a losing strategy. Just refer to Neville Chamberlain for a textbook case study of the latter.

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