Apple share buyback – the numbers talk

“Apple (AAPL) announced that it has increased its share repurchase authorization to $60 billion from the $10 billion level announced last year. The buyback is to take place between now and the end of 2015,” J. M. Manness writes for Seeking Alpha. “The question for the investor is ‘What does this mean for me?'”

“In theory, the buyback is a wash. If today it buys back $1 billion in shares, the value of the company has not changed -$1B cash + 1B assets = $0 change,” Manness writes. “But the difference is more than this. When a company buys back shares, then any future profits are split among fewer shares, so the Earning Per Share goes up. At this point, the value of each share should go up as well.”

Manness writes, “In the most recent quarter (FQ2-2013) there was a net income of $9.55 B. With the current 946.8 M shares outstanding, the EPS for last quarter was $10.09. However, with shares repurchased at an average of $500/share, this would leave only 808.7 M shares so the EPS would have been $11.81; or $1.74 higher… If the price does not rise, then Apple will be buying back almost 15% total of its shares. Even an average price of $500 would give a buyback of 12.7%. The increased earnings would go on for ever. For the investor, this is the gift that keeps giving.”

Read more in the full article here.

15 Comments

    1. It is a wash for Apple Inc. The balance sheet for Apple Inc. does not change at the bottom line.

      It changes for AAPL which is legally different from Apple Inc.

      1. No, it’s just not true unless you believe that every time anybody or any company buys something it’s “a wash” because you spent $X to buy something worth $X. In this case it is especially not “a wash” because of the high dividend. Every share APPL that Apple buys is one less payable dividend every quarter. And, of course, they own another share of the world’s most valuable company. Not a wash.

  1. There’s only one problem with this. Wall Street clearly ignores revenue or profitability in the share price so why do you think changes in outstanding shares will have an impact? WS only considers future growth as a reason for increasing stock price. They discount any other factors that are real and logical since it cannot be spun to their advantage.
    My guess is that WS will use to buyback to gain short term profits at Apple’s expense but the overall effect on the share price will be minimal. All it is doing is pouring billions of liquidity into the market.

    1. It looks the same way to me. If Wall Street doesn’t value revenue or profitability, it just seems like Apple is pissing head on into the wind. I realize that Apple will continue to pile up cash and internally the company will remain very wealthy, but it doesn’t translate into shareholder value. All Apple is doing now is fiddling around with numbers Wall Street appears to have little interest in. To me, Apple is offering a very health dividend but even that’s not moving Apple’s share price very much. It seems like Apple is trying to make all sorts of end runs around Wall Street instead of tackling the real problem head on.

      What Apple really needs to do is sell more iPhones. It doesn’t get much simpler than that. If not iPhones, then some new product which will give Apple 100% market share while offering the same profit margins of the iPhone. At this point Apple absolutely has to sell a hell of a lot more iPhones to regain at least some semblance of market share to increase shareholder value.

      As of yet, I can’t really tell if these financial moves are building investor confidence or not and it may merely take more time to see any benefits. Maybe greatly increased iPhone sales along with this financial footwork will make a huge difference in the future. I don’t really understand the big picture and I can only see results over this short period of time. I suppose I’ll have to at least wait for another quarter to pass to see any results.

  2. Everyone seems to forget that one of the reasons Apple gave for the buybacks was so that they could then turn around and grant those shares to employees; the intent was that so no new shares needed to be created, diluting existing shares.

    Typical Wall St. short-sitedness.

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