Apple Remains Fundamentally Undervalued After Tax Fine

The firm has almost $215 billion in international cash on hand, so the record tax bill will make only a small dent in the firm's cash cushion

Brian Colello, CPA 31 August, 2016 | 7:44AM
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Apple has been hit by a €13 billion tax bill by the European Commission, which ruled that Ireland gave illegal tax benefits to Apple (AAPL). Morningstar equity analysts plan to maintain their fair values estimate of $133 per share, despite the fine.

Analysts concede that $3 per share, or just over 2% of our fair value estimate, is at risk with the ruling, but the timing and amount of the final payment remain uncertain. Apple will not take a financial charge for the tax bill in its near-term results, and the fine may be placed in restricted cash but will not be immediately paid out.

We expect both Apple and Ireland will appeal the ruling, and a final decision could take years. Apple has almost $215 billion in international cash on hand, so the record tax bill will make only a small dent in the firm's cash cushion. Further, Apple indicated that the ruling will not have an effect on its long-term tax rate, presumably because its Irish tax structure in question was modified in 2015. Regardless, we continue to view Apple as fundamentally undervalued, and the company remains one of our best investment ideas in the tech sector.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Apple Inc145.07 USD-0.39Rating

About Author

Brian Colello, CPA  is a senior stock analyst with Morningstar.

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