Apple’s Buybacks Boost the Stock's Attractiveness

Apple (AAPL) stock has been under pressure the past few sessions and fell to a 2-week low Monday on concern that the worsening pandemic in China will curb its iPhone production.  Bloomberg reported Monday that lockdowns in Zhengzhou, home of Apple’s largest iPhone production plant, will likely result in a production shortfall of close to 6 million iPhone Pro units this year.  However, Apple’s solid earnings and its generous stock buybacks offset to some extent short-term concerns about iPhone output.

Over the past decade, Apple has spent more than $550 billion buying back its stock, more than any other U.S. company, and those buybacks show no sign of letting up.  The markets will look to an April announcement from Apple, when the company typically signals its latest repurchasing authorization, for how much stock the company plans to purchase over the upcoming year.  Over the past two years, Apple has added $90 billion each year to its stock repurchase program.

In its last quarterly earnings announcement, Apple was the only mega-cap technology stock to rally after announcing its earnings results, keeping analysts from dramatically cutting its earnings estimates, in contrast to widespread cuts at other mega-cap tech companies.  Analysts say that even with a slowdown in global economic growth, demand is still strong for Apple’s most expensive iPhones.  Despite the Covid lockdowns in China that have caused a slowdown in iPhone production that may cause a short-term hit to revenue, there may not be long-term damage to the stock.

Apple is the world’s largest company, with a market value of almost $2.3 trillion.  In two of the past five years, it has outspent the second-highest stock repurchaser by at least $50 billion.  It spent nearly $90 billion on stock buybacks last year, about equal to the market value of Citigroup.  Apple, which ended last quarter with $169 billion in cash and marketable securities, aims to have net cash minus debt outstanding of zero in the future.

Investors like stock buybacks because they reduce a company’s share count and thereby boost earnings per share.  There is a risk that a company might overpay for its stock, buying at a time when the stock is overvalued.  However, Apple said it had paid an average price of $47 per share since it began buying back stock ten years ago, compared with the current price of $144 per share.

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