Apple vs. Congress
Near the top of the business headlines is the battle that Congress has started to wage with Apple Inc. (NASDAQ: AAPL) over the taxes it pays. By some measures, the company barely pays taxes at all. Among the evaluations of the Apple showdown with Capital Hill, one comes from CNN Money:
Apple executives are set to defend the company's tax practices and call for corporate tax reform on Capitol Hill Tuesday amid harsh criticism following a Senate investigation.
A report released Monday by Senators John McCain, R-Arizona, and Carl Levin, D-Michigan, charged that Apple "has used a complex web of offshore entities - including three foreign subsidiaries the company claims are not tax resident in any nation - to avoid paying billions of dollars in U.S. income taxes."
The report says Apple relies on a number of unusual accounting tactics along with a handful of subsidiaries in Ireland - where it has negotiated a tax rate of less than 2% - to reduce its tax bill. The U.S. corporate tax rate stands at 35%.
And The Wall Street Journal says on findings about Apple's tax practices:
Apple used technicalities in Irish and American tax law to pay little or no corporate taxes on at least $74 billion over the past four years, according to the Senate panel's findings. The investigation found no evidence that Apple did anything illegal. Aides to the subcommittee said they have never seen a company use a subsidiary that didn't owe corporate income taxes to any country.
Apple didn't dispute that entities it set up didn't pay corporate taxes but denied they were designed to avoid taxes. The company said it pays local taxes on overseas earnings and U.S. taxes on investment income generated at its Irish subsidiaries.
Goldman's S&P 500 Target
The sentiment about the value of stocks continues to be relentlessly positive. None other than the powerful investment bank Goldman Sachs Group Inc. (NYSE: GS) has increased its target for the S&P 500. According to MarketWatch:
The Standard & Poor's 500 index will rise 5% from current levels to reach 1,750 by the end of this year, said Goldman Sachs in a research note dated May 20. A team of strategists led by David J. Kostin, chief U.S. equity strategist, said the index will "advance by 9% to 1,900 in 2014, and climb by 10% to 2,100 in 2015." The 2013 return implies a year-end price/earnings ratio of 15 times, which is a one mutiple-point premium to Goldman's fair-value estimate. Improved economic growth, rising dividends - Goldman expects those dividends to gain 30% between 2013 and 2015 - and potentially low sustained interest rates are all contributors to the higher S&P 500 forecasts. If interest rates stay low despite better growth then upside to those S&P 500 targets could be bigger than they are currently forecasting, said Kostin.
New Xbox Unveiled
Microsoft Corp.'s (NASDAQ: MSFT) most important product announcement since Windows 8 will happen today as it releases details about its next generation Xbox. The hype already has begun. NBC News says of the new Xbox launch:
On the eve of Microsoft's planned Xbox reveal, the company has finally ended its long silent streak to say that the new console will actually be unveiled in two stages.
Speaking on the latest Major Nelson podcast, Microsoft's interactive entertainment chief of staff Aaron Greenberg said that his company will roll out its next-generation video game hardware in two steps — first at a special event held tomorrow at the Redmond, Wash., Microsoft campus, and then at a more game-centric event during the Electronic Entertainment Expo (E3) in June.
"We have so much goodness that there's no way we could have packed it all into one event," Greenberg said.
"The best way I can describe it is: We're really going to tell one story across two events," he added. "So we're going to start on the 21st [of May]; and really that's about revealing the next Xbox platform and our vision for the future of games, the future of entertainment."
If sales are poor, Greenberg will be out of work by the end of the year.
Douglas A. McIntyre
Filed under: 24/7 Wall St. Wire, Market Open Tagged: AAPL, featured, GS, MSFT