“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.