Why Apple Will Do A $200 Billion Cash-Return Program, According To Credit Suisse

Credit Suisse analyst Kulbinder Garcha is upgrading Apple to "outperform" from "neutral" and slapping a $130 price target on the stock, up from $11o. The stock is currently priced at ~$110.

What's motivating the upgrade? The iPhone business, naturally.

Garcha thinks Apple will sell a boatload of iPhones. Not only that, he's predicting Apple sells a boatload of iPhones with 64GB of storage, which cost consumers $100 more than the lower tier. The increased sales of 64GB iPhones will improve Apple's profits and cash flow.

Beyond the iPhone business, Garcha believes Apple will increase its cash-return program.

In 2013, Apple initiated one of the biggest cash-return programs in corporate history, promising to spend $40 billion on dividends and $60 billion on share buybacks by the end of 2015. In 2014, Apple expanded that program further. It increased its buyback plan to $90 billion in 2014, making its total cash-return program valued at $130 billion.

Despite Apple's gigantic cash-return program, it's on pace to have more cash on hand than when the program started, Garcha says. In 2013, when the program started, Apple had $137 billion in cash. Last quarter, Apple had $155 billion in cash.

As a result, Garcha thinks Apple will increase its cash-return program to an astounding $200 billion over the next three years. He notes that Apple is doing $50 billion a year in free cash flow, so this isn't insane.

To add some context to the $200 billion number, Facebook's market cap is $214 billion. So Apple would be buying a Facebook. Amazon's market cap is $134 billion. Tesla's market cap is $25 billion. So, Apple would be buying a Tesla and an Amazon.

Here's a chart from Garcha on the cash program. If Apple doesn't increase its share-repurchase program, cash is going to grow significantly.