Surprise! Apple still has $70 billion in its 2018 buyback program

Nice timing, with the stock at a 3-month low.

With Apple shares in free fall Friday, some investors’ thoughts turned to what Braeburn’s Robert Paul Leitao has called ”the biggest asset transfer from an enterprise to its shareholders in history —Apple’s commitment to return 100% of its repatriated profits to investors.

Supply-and-demand suggests that as hundreds of millions of shares go out of circulation, the stock will necessarily rise. But by how much?

In a reprise of the useful exercise he posted last April, friend-of-the-blog Jeff F offers some estimates:

With $70B left in its repurchase program (Apple posted a nice table of this online), Apple can purchase 341M shares at $205 repurchase price. That effectively bumps forward EPS from $13.25 to $14.27 EPS. If the multiple just stays the same at 16, for example, the implied price per share increases from $211.99 to $228.39.

buybacksClick to enlarge. 

Jeff F continues:

Apple has $237B of cash and marketable securities, so it’s expected that Apple will update its repurchase program on its May earnings call. Another $100B buys even more shares back.
buybacks
Click to enlarge.

Jeff’s take: Of course Apple will do this over time, but it illustrates the impact of every shareholder owning a higher % of Apple as shares are repurchased.

What’s changed from last April? The current share price and forward earnings projected by Wall Street at $63 billion, a conservative 5%.

17 Comments

  1. Fred Stein said:

    Thanks Philip and Jeff for showing the homework. This supports the strategy of selling long-term out of the money puts. When the market over-reacts to the down-side, this works quite well.

    4
    November 3, 2018
    • Alan Birnbaum said:

      I’m much less sophisticated. I just by LEAPS when the stock is down, usually a year or two out and set and forget. (being unsophisticated, can you give a clear example with current prices on the strategy) ?
      Many Thanks !!

      1
      November 3, 2018
  2. Robert Paul Leitao said:

    I agree with Jeff. It’s $70 billion in remaining repurchase authorizations at this time with yet another expansion of the repurchase plan likely to announced with March quarter results. In six years (since FQ4 2012) Apple has already reduced the fully diluted share count by 27%.

    Friday’s sell-off and the market’s irrational response to December quarter guidance and management’s forward-thinking approach to reporting transparency create an incredible opportunity for management to repurchase shares at discounted prices.

    Apple is now trading at a price level first and last seen in early August and at about an 11% discount from the recent all-time high. $40 billion dollars (or more) adroitly deployed between now and the end of the March quarter will significantly reduce the fully diluted share count even more.

    The lower the share count now, the greater likelihood of higher dividends per share later and of course the higher the eps in future quarters for those concerned with that metric. Apple’s forecast record-breaking December quarter will add yet more cash to deploy through buybacks and dividend hikes.

    The vagaries of market sentiment and the Street’s myopic view of the company’s near-term performance have yielded a remarkable opportunity for management to reward long-term shareholders through large and immediate open market share repurchases at very favorable prices.

    4
    November 3, 2018
  3. Michael Gabrys said:

    I’m pretty sure Apple provided guidance of getting to NET cash of zero (net of debt), which I thought was about $130BB at 9/30/18. They generate about $75BB of cash a year from operations. I expect any additional share repurchase programs will be based upon cash generated, not gross cash held.

    0
    November 3, 2018
    • Robert Paul Leitao said:

      Michael:

      Good point. The way I look at the quarter-ending numbers, for practical purposes I don’t see a $130 billion spread available for distribution to shareholders. But over time long-term debt will be diminished as instruments come due and net income will continue to rise.

      Any expansion of the current share repurchase authorization can be deployed over a multi-year period. As interest rates continue on the pathway to normalcy and the opportunity costs of investing in equities continue to rise, I certainly wouldn’t mind a greater portion of the capital return program deployed for dividend increases. The percentage of net income Apple deploys for dividends remains modest.

      1
      November 3, 2018
    • Michael Thompson said:

      Apple’s debt has fallen in the last two quarters from a high of $122 billion to $114 billion. That means that gross cash of $114 billion will take Apple to net cash neutral.

      However, more debt will continue to roll off annually. So that figure will continue going lower.

      0
      November 3, 2018
  4. Gregg Thurman said:

    Buried in Apple’s buybacks is that most shares bought back are compensation grants that have not yet been recognized in the share count. Divide the net share reduction (QoQ) by amount spent and you get an unrealistic price per share.

    Additionally, unless Apple foresaw this dip the price it pays is already determined in structured purchase agreements where most of the shares are acquired. The point of the structured purchase agreements is to avoid SEC rules supposedly designed to protect the little investor from market manipulation by company insiders (not for personal gain, but Company gain). This is why Apple is paying a premium to the market for shares.

    Apple is protected from the SEC rules because they are buying from institutions, not from retail.

    0
    November 4, 2018
  5. Kathy Corby said:

    Let’s do a little Options 101. Don’t read this if you are a sophisticated options trader, but should you be considering some of the strategies discussed above, and are new to options, this is for you.
    Buying an option confers a right; selling an option confers an obligation. If you buy call LEAPs, which are very long dated calls, you have the right to either acquire the shares at the specified strike price, or to sell that call back to the market, hopefully appreciated, at some point in the future. But long options, being wasting instruments, decrease in value as time goes by and your purchase will be at a loss if the value of the stock does not exceed not only the strike price, but the sum of the strike place plus the premium which you paid for it. At times of high volatility, such as now, all options are more richly valued, and it becomes much more difficult to exceed that bar. However, on the upside, A purchased call, such as a LEAP, has unlimited profit. A call spread risks less capital, since the sold call partly defrays the price of the purchased call, but does not have unlimited profit potential. Nevertheless, it is possible with a reasonable long call spread to double your money, or better, if the stock appreciates, and volatility has less effect since you are both buying and selling a call option, both fairly expensive at this moment in time.
    In times of high volatility, selling puts is in general the preferred strategy. However the profit on the option itself, should you choose to sell it back to the market, is limited to the price which you obtain for the sale of the put. Further, if the stock declines below your sold strike price, the shares may be put to you. There may be a price at which you would be delighted to obtain Apple shares, such as 180, but should there be a significant recession with a 40% pullback in the market, you would accept those shares at 180 even if they were valued at 140 on the open market. God forbid, but economists do expect such a pullback within the next one or two years, and Apple stock will move at least partially with the market. According to John Maynard Keynes, “The market can remain irrational longer than you can remain solvent “. Further, your broker will hold aside as margin the amount required to purchase the stock at the sold put strike price, and you may have better uses for that capital in the interim. Selling a put spread limits your risk to the downside, and even should the stock price drop horribly, the long put in the put spread will offer you protection and limit your loss. To those of you who are new to options, you may wish to look into selling put spreads, which are appropriate to high volatility environments and have limited potential for capital loss.
    I personally was one of the victims of Andy Zaky‘s “Bullish Cross “debacle, which is well known to PED. I subsequently obtained an excellent education in options trading through an educational group called OptionsAnimal, which I would recommend to anyone wishing to become a sophisticated options trader, although I’m not certain if it would constitute an inappropriate recommendation in this forum. If so, I apologize, and PED, feel free to delete all or part of my comment.

    0
    November 4, 2018
    • Gregg Thurman said:

      Most excellent primer with one correction.

      In times of high volatility, selling puts is in general, the preferred strategy. However the profit on the option itself, should you choose to sell it back to the market…

      Should read: buy it back from the market…

      0
      November 4, 2018
  6. Mark Visnic said:

    “They generate about $75 BB / year in cash flow from operations.”

    It is more than that. They reported $19.5 BB in operating cash flow in fiscal Q4. A seasonally low quarter with a run rate of $78 Bb in op c/f suggests closer to $90+ BB going forward.

    This just underscores how misguided the share price reaction was/is.

    1
    November 4, 2018
  7. Brian Loftus said:

    I look at thIngs a little different. They bought back $68 B in the last 12 months and their net cash position went down by $30 B. They have a position of $123 B net cash. With a 10% growth in revenue per year they can continue this indefinitely.

    0
    November 4, 2018

Leave a Reply