iPhone maker now in exclusive club with Microsoft after iPhone 13 boost and iPhone 14 plans

Apple Inc.’s long-term credit rating was upgraded to Aaa by Moody’s Investors Service, putting the iPhone maker in an exclusive club with Microsoft Corp. and Johnson & Johnson as the only U.S. corporations in the S&P 500 with the highest possible credit score. “The upgrade of Apple’s rating to Aaa reflects the company’s exceptional liquidity, robust earnings that we expect will continue to grow over the next 2 to 3 years, and its very strong business profile,” Moody’s analyst Raj Joshi said in a statement Tuesday.

The move elevates a company that’s already the world’s biggest by market value, fueled by the success of the iPhone and a push into lucrative new markets. Apple market capitalization flirted with $3 trillion this year, with investors betting that an expansion into augmented reality and possibly cars could help keep sales growing.

Apple’s financial policy of transitioning into a net cash neutral position “over time” and its capital allocations since U.S. tax reform mean it will “maintain an exceptionally strong liquidity profile over the next 3 to 5 years,” Moody’s said.

After Apple accumulated cash for years under co-founder Steve Jobs, current Chief Executive Officer Tim Cook has been working on ways to better invest the company’s money and return it to shareholders. Good Quarter Since 2012, the company has paid dividends and conducted stock buybacks. As of October, it had $191 billion in cash and marketable securities on hand. In 2018, the company told investors it’s working toward becoming cash neutral. Apple had $125 billion in debt as of October, made up of floating and fixed-rate notes. That leaves its net cash position at $66 billion. It returned $24 billion to shareholders in the September quarter, according to the company.

Earlier this year, Apple’s longtime treasurer Gary Wipfler retired. He was replaced by Michael Shapiro, who has run the company’s in-house cash investment firm Braeburn Capital.

Apple has also used its cash on research and development, the pre-purchasing of future components, investments in suppliers, and acquisitions like the recent $1 billion deal for Intel Corp.’s cellular modem unit.

It’s also on track for what both the company and analysts forecast will be Apple’s most lucrative quarter to date, with first quarter 2022 revenue likely to be around $118 billion, according to projections compiled by Bloomberg. That’s not as strong as it could have been, however, with Apple saying revenue will be impacted by at least $6 billion on chip-related supply shortages.

Investors, however, appear optimistic about the company’s long-term prospects. Several Apple bonds trade at a lower yield than U.S. Treasuries with the same maturity, an indication that investors see little to no credit risk with the company’s debt.

While the iPhone 13 that launched in September was a minor upgrade over the iPhone 12, the company is planning a larger overhaul for the iPhone 14 range next year. It’s also planning to introduce its first major new product category in six years with a mixed reality headset as early as next year.

New product categories, combined with a larger push into digital subscriptions and bundles, give investors hope that the company can continue to juice revenue from its base of over 1.5 billion devices.