Does an Apple Inc. (AAPL) Acquisition of Tesla (TSLA) Really Make Sense?


While we all know by now that Apple Inc. (NASDAQ:AAPL) plans to enter the automobile space in one form or another, there have been rumors for years that the iPhone manufacturer may have interest in acquiring one of the most tech-advanced automobile manufacturers in the world, Tesla (NASDAQ:TSLA). While these rumors have had little to really go on, such an acquistion certainly seems to make sense for the most part.

If Apple Inc. (NASDAQ:AAPL) really does plan on selling electric, automated vehicles sometime in the future, the quickest way to do this is either by partnering with an auto manufacturer, or acquiring one outright. If the acquisition route is taken there is no other company than Tesla which would suit Apple’s needs the best. Afterall, the companies have many similarities in the way thy are run, the premium customers are willing to pay for their products, and the almost magical atmosphere that surrounds them. Tesla, currently trading at a market cap of $27.6 billion, could likely be bought out for around $40 billion, if founder Elon Musk would allow it. While $40 billion is a boatload of cash for many companies, Apple has more than 5 times that amount on their balance sheet.

Are there cheaper ways to enter the automobile market? Yes. Are their faster ways? Absolutely not. A buyout of Tesla would give Apple an imediate platform for launching the first Apple iCar, and with the amazing reviews that Tesla’s vehicles are already receving, this would give Apple an immediate entrace into the auto world, as the producer of the top rated vehicle on the planet, the Model S. There is no doubt that a future car, branded with Apple’s name on it would sell incredibly well right out of the gate. With numerous companies entering the automated electric vehicle space, gobling up Tesla would mean one less rival to compete with.

Will such an aquisition happen? It’s really impossible to say, but with over $200 billion in cash on their balance sheet, you would think that Apple would be looking for ways to use that cash to grow profits over the next decade. Tesla certainly appears to be on track to do such. The stock increased 0.53% or $0.51 on January 8, hitting $96.96. About 70.80M shares traded hands or up 58.50% from the average. AAPL has declined 24.63% since June 5, 2015 and is currently downtrending. It has underperformed the S&P500 by 19.94%.

From a total of 30 analysts covering Apple Inc. (NASDAQ:AAPL) stock, 27 rate it a “Buy”, 0 a “Sell”, and 3 a “Hold”. This means that 90% of the ratings are positive. The highest target price is $200 while the lowest target price is $125. The mean of all analyst targets is $147.93 which is 52.57% above today’s ($96.96) stock price. Apple Inc. was the topic of 96 analyst reports since July 21, 2015 according to the firm StockzIntelligence Inc. Stifel Nicolaus maintained shares on December 23 with a “Buy” rating. Barclays Capital maintained shares with a”Overweight” rating and a $150 target share price in their report from a December 14. Cowen & Co maintained AAPL stock in a recent report from December 22 with a “Market Perform” rating. BMO Capital Markets initiated the rating on December 11. BMO Capital Markets has a “Outperform” rating and a $145 price target on shares. Finally, UBS maintained the stock with a “Buy” rating in a report they issued on a December 16.

The institutional sentiment increased to 1.18 in Q2 2015. It’s up 0.22, from 0.96 in 2015Q2. The ratio improved, as 103 funds sold all their Apple Inc. shares they owned while 854 reduced their positions. 102 funds bought stakes while 1032 increased their total positions. Institutions now own 3.20 billion shares which is 1.58% less than the previous share count of 3.25 billion in 2015Q2.

Compton Capital Management Inc Ri holds 45.15% of its total portfolio in Apple Inc., equating to 113,694 shares. Raiff Partners Inc owns 100,000 shares representing 32.27% of their total US portfolio. Moreover, Rfg Advisory Group Llc has 25.06% of their total portfolio invested in the company, equating to 70,558 shares. The New York-based Independent Investors Inc has a total of 23.66% of their portfolio invested in the stock. Dock Street Asset Management Inc, a Connecticut-based fund reported 269,584 shares owned.

Since March 6, 2015, the stock had 0 insider buys, and 7 insider sales for a total of $17.48 million in net activity. Maestri Luca sold 2,908 shares worth $325,347. Williams Jeffrey E sold 46,873 shares worth $5.18 million. Riccio Daniel J. sold 24,085 shares worth $3.01M. Ahrendts Angela J sold 44,789 shares worth $5.90 million. The insider Levinson Arthur D sold 70,000 shares worth $9.20 million.

Apple Inc. designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The company has a market cap of $537.59 billion. The Company’s services and products include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. It has 10.54 P/E ratio. The Firm also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store.