Apple, Inc. bought back another $5 billion of $AAPL stock in Q3 as shares rose 20%

Posted:
in AAPL Investors edited October 2014
During its fiscal Q3 ending in June, Apple spent $5 billion to buy up its own stock off the market. Since the beginning of fiscal 2014, Apple has spent $28 billion to repurchase stock at average share prices between two-thirds and three-quarters of its current stock price.

AAPL capital return by shares


During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23. Apple's investment partners are also continuing to to buy shares as part of the $12 billion Accelerated Share Repurchase program initiated in January, which will continue through 2014.

Apple's buyback program is not only the largest stock buyback program (setting multiple records both per quarter and in trailing twelve-month buyback activity) since the SEC enhanced the transparency of issue repurchases in 2005, but also arguably most successful program ever initiated.

AAPL buybacks Q3 2014


Apple's chief executive Tim Cook first announced Apple's current dividend and share buyback plan in March 2012. At the time, Apple's share price was around $85 (split adjusted).

However, by the time Apple's buyback program began at the start of fiscal 2013 (beginning in September 2012), Apple's share price began to collapse. The company's shares continued to fall and remain low throughout 2013, dipping as low as $55. That provided Apple with the perfect conditions to buy up its own stock.

Given the prevailing conditions, Apple immediately shifted from its originally conservative plan (which spent a total of $2 billion on buybacks in its first quarter) to a liberal outlay of $26 billion in calendar 2013 followed by $23 billion spent on buying up shares over the last six months of 2014.

Capt'n Cook's surreal milking of fleeing investors

Apple's establishment of a third ASR in late January helped the company to rapidly spend an incredible $14 billion on buybacks within a two week period, after industry analysts incited a stock panic that caused Apple's shares to plunge more than 8 percent following the company's Q1 release detailing its highest ever quarterly revenues and operating profits--results that the tech media depicted as "disappointing."

AAPL Q1 2014


Apple's shares since then have since appreciated almost 25 percent, nearly reaching the company's all time high ($100.01) set in September 2012, just prior to the beginning of the buybacks. Apple shares closed today at $97.67.

The dip and subsequent recovery of Apple's share price over the last two years has enabled the company's buyback plan to effectively generate tremendous returns for its shareholders from the "massive pile of cash" that some investors had expressed concerns about not generating high enough returns.

Despite having spent $51 billion on buybacks and more than $21 billion to distribute dividends since the beginning of fiscal 2013, Apple's cash holdings have grown from $121 billion when Cook first announced the capital return program to $164 billion at the end of June. Apple's buybacks and dividends have been paid from its domestic cash holdings, as well as a $31 billion debt offering that has given the company access to capital at absurdly low interest rates, secured by its reputation anchored by massive cash holdings overseas.

Even subtracting Apple's long term debt from its cash holdings results in a net gain of $12 billion despite the $73 billion spent on capital return programs over the last two years. At the same time, Apple has produced the best selling smartphone and tablet models globally (despite efforts by its competitors to brand it as "lacking in innovation") and has increased its Mac market share as the overall PC market shrinks.

ASR, matey

To leverage the most value from its cash holdings and take full advantage of the market's irrational turn, Apple used Accelerated Share Repurchase (ASR). Under an ASR, a company buys its shares from an investment bank, which essentially shorts the stock by borrowing shares (typically from its clients) which it then delivers to the company for a fixed, upfront price.

Over the term of the ASR agreement, the investment bank then seeks to buy shares to replace those it has borrowed. Buying back shares via an ASR is usually more expensive because the bank wants to profit from the transaction. However, the slight price premium allows the company to spend a fixed amount of money rapidly and immediately reduce its outstanding share count.

While Apple fronted the money right away and retired the initial proceeds of borrowed stock, the company's banking partner continued to buy back shares over the year-long term of the agreements, resulting in windfall of 1.1 million extra shares that were delivered to Apple for retirement in the quarter when the second ASR was settled. The average share price under the second ASR in 2013 was $69.55.

Investors who sold as Apple's stock plunged in paper value overnight from $78.50 to below $72 (and then continued there through the end of January 2014) unwittingly found Apple itself to be a willing buyer of the shares they abandoned. One week into February, the company's chief executive Tim Cook revealed that Apple's executive team had jumped at the rare opportunity and spent $14 billion of its remaining buyback budget to snatch up its shares at a discount.

http://ycharts.com/companies/AAPL/shares_outstanding


Following the $14 billion share grab, which included a third $12 billion ASR and an additional $2 billion in open market purchases, Apple spent an additional $4 billion in open market purchases throughout the rest of the spring quarter, resulting in the $18 billion total for fiscal Q2. Following its stock split, Apple now has 5.989 billion shares outstanding.

Apple has since continued its quarterly pace of buying back $5 billion in shares off the open market in the June quarter, and noted in SEC filings that it expects to continue, although it is not obligated to do so. Apple has another $39 billion set aside to buyback shares under its current capital return program, which is currently slated to continue through the end of calendar 2015.
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Comments

  • Reply 1 of 47
    anantksundaramanantksundaram Posts: 19,224member

    I truly wonder if it makes sense to continue with the repurchase program at the current price (= $683.69, pre-split; all-time high is ~$705). It might have made more sense to be a bit more aggressive earlier. 

     

    Given the parity in tax rates for qualified dividends versus capital gains, a special dividend with the remaining, planned $39B (~$6.50 per share) may not be such a bad idea...

  • Reply 2 of 47
    Analysts: Constant share purchases by AAPL show they have no faith in the general investor. We're downgrading the stock to Overweight from Buy status.
  • Reply 3 of 47
    Wall Street is watching Cook conduct a master class in share and cash management.
  • Reply 4 of 47
    Echoing anantksundaram, it is now irresponsible to continue with a linear buyback.

    That's the very thing bad management has historically done with its cash and has looked foolish because of it.

    Apple can retire all of ~6.5% if it spent the whole buyback at current prices. If it continues buying appreciating stock, the value of the buyback will diminish to something well under 5%.

    What the company should do instead is basically buy only if the price falls. It can't stop the stock from dropping if the market really wants that, but it can help act as a backstop if the price falls below, for example, $85 "buy this much"... below $80 "buy that much more."

    From here, even at $5 billion per quarter, Apple won't be able to spend $39 billion. And if it spends it near the end, it looks even more foolish if the stock is at the high end 6 quarters from now.
  • Reply 5 of 47
    rogifanrogifan Posts: 10,669member
    So is it a master class or irresponsible? :???:
  • Reply 6 of 47
    "Apple spent $5 billion buying back 58,661 shares at an average price of $85.23"

    That would be 5 Million worth.
  • Reply 7 of 47
    sacto joesacto joe Posts: 742member
    Apple Net Income for the last 4 quarters is $38.555 billion. That gives us a yearly EPS of (38.555/5.989=) $6.44/share. At today's closing price of $97.67, that's equivalent to a P/E of 15.17.

    Given this very low P/E ratio, and considering that the company intends to buy back another $39 billion dollars of its own stock, that P/E ratio has nowhere to go but down. And that's assuming earnings are flat. Of course, earnings are projected to accelerate as Apple is just about to both enter its peak earnings season and release a whole new slate of upgrades and new products. That will slam the P/E ratio even more.

    Two things can happen: (1) The price stays low, the P/E shrinks, and Apple makes out like a bandit buying back its stock with huge bang per buck; (2) The price compensates for the lowering P/E ratio and Apple ends up buying back less stock, but still an appreciable amount.

    This is a classic win/win for Apple and for long term investors in AAPL.
  • Reply 8 of 47
    sacto joesacto joe Posts: 742member
    Quote:
    Originally Posted by markrogo View Post



    Echoing anantksundaram, it is now irresponsible to continue with a linear buyback.



    That's the very thing bad management has historically done with its cash and has looked foolish because of it.



    Apple can retire all of ~6.5% if it spent the whole buyback at current prices. If it continues buying appreciating stock, the value of the buyback will diminish to something well under 5%.



    What the company should do instead is basically buy only if the price falls. It can't stop the stock from dropping if the market really wants that, but it can help act as a backstop if the price falls below, for example, $85 "buy this much"... below $80 "buy that much more."



    From here, even at $5 billion per quarter, Apple won't be able to spend $39 billion. And if it spends it near the end, it looks even more foolish if the stock is at the high end 6 quarters from now.

    Why that's a bad idea: You can't time the market. Yes, you might get more "bang per buck", but there's nothing that says the market won't suddenly take a nosedive for any number of reasons.

     

    Also, it creates a "hump" in the valuation that's bound to create volatility, from a hysteresis effect if nothing else. Good for options freaks, not good for long term holders like me. It was all right to do that when AAPL was beaten senseless by shorts and down around $400/share. It was even all right when the shorts started trying to pull AAPL down under $500/share. But what's best for longs is a nice, steady re-inflation of the valuation of AAPL.

     

    In the meantime, we're getting decent dividends, which has helped take the sting out of the lousy valuation.

     

    Yes, lousy valuation. Apple should be up around a P/E of 20, not down almost to 15. It's got too much on the ball to be valued at half of Google.

  • Reply 9 of 47
    quazzequazze Posts: 21member
    "During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23."

    58,661 (shares) x $85.23 (stock price) = $5,000,000 (million -- not BILLION)

    Apple would need to purchase 58,602,906 shares (at $85.23) to reach $5,000,000,000.00.
  • Reply 10 of 47
    maccherrymaccherry Posts: 924member

    What a crock of sh**!

    If you're buying back your own goddamn stock them what the hell are the markets for.

    But we all know that market speak is BS!

    Stock buy back is a legal loop hole that allows companies to embezzle their company's bank accounts.

  • Reply 11 of 47
    elmoofoelmoofo Posts: 100member
    "During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23."

    Wanna check that math?
  • Reply 12 of 47
    sacto joesacto joe Posts: 742member
    Quote:

    Originally Posted by elmoofo View Post



    "During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23."



    Wanna check that math?

    Pretty obvious it had to be 58.661 million shares....

  • Reply 13 of 47
    sacto joesacto joe Posts: 742member
    Quote:
    Originally Posted by maccherry View Post

     

    What a crock of sh**!

    If you're buying back your own goddamn stock them what the hell are the markets for.

    But we all know that market speak is BS!

    Stock buy back is a legal loop hole that allows companies to embezzle their company's bank accounts.


     I'm a shareholder, and this is extremely positive for me. Apple saw a great way to invest their excess cash. It happened to be their own stock. And that investment is beneficial to all long term holders of AAPL. Our dividends will increase because the dividend pie gets divided into fewer pieces. This is a genius move on Apple's part. 

  • Reply 14 of 47
    robin huberrobin huber Posts: 3,268member
    Since I will never sell my shares, I may be the only person at future stockholder meetings.
  • Reply 15 of 47
    elmoofoelmoofo Posts: 100member
    Not obvious enough for it to be there, apparently.
  • Reply 16 of 47
    misamisa Posts: 827member
    I truly wonder if it makes sense to continue with the repurchase program at the current price (= $683.69, pre-split; all-time high is ~$705). It might have made more sense to be a bit more aggressive earlier. 

    Given the parity in tax rates for qualified dividends versus capital gains, a special dividend with the remaining, planned $39B (~$6.50 per share) may not be such a bad idea...
    A special dividend is a bad idea, because that just gives away the companies money for no benefit for future and past share holders. That's the kind of thing you do when the company is about to implode. Same with buying back stock. Buying it back for any reason other than to take advantage of foolish bears trying to push down the stock is just foolish. Over time the stock dilutes because of stock options that vest, and when those are sold, they end up back in the common stock pool. Companies that are about to go bankrupt, buy up their own stock as a last ditch effort to not get delisted from their stock market. That's not Apple at all. Carl Ichan was demanding more than 50 billion in stock buybacks and then suddenly those demands disappeared after meeting with Cook. And look at where we are now.
  • Reply 17 of 47
    anantksundaramanantksundaram Posts: 19,224member
    misa wrote: »
    I truly wonder if it makes sense to continue with the repurchase program at the current price (= $683.69, pre-split; all-time high is ~$705). It might have made more sense to be a bit more aggressive earlier. 

    Given the parity in tax rates for qualified dividends versus capital gains, a special dividend with the remaining, planned $39B (~$6.50 per share) may not be such a bad idea...
    A special dividend is a bad idea, because that just gives away the companies money for no benefit for future and past share holders. That's the kind of thing you do when the company is about to implode. Same with buying back stock. Buying it back for any reason other than to take advantage of foolish bears trying to push down the stock is just foolish. Over time the stock dilutes because of stock options that vest, and when those are sold, they end up back in the common stock pool. Companies that are about to go bankrupt, buy up their own stock as a last ditch effort to not get delisted from their stock market. That's not Apple at all. Carl Ichan was demanding more than 50 billion in stock buybacks and then suddenly those demands disappeared after meeting with Cook. And look at where we are now.

    To be simple and honest about it, your post makes no sense.

    (Edited)
  • Reply 18 of 47
    ai46ai46 Posts: 56member
    Quote:

    Originally Posted by elmoofo View Post



    Not obvious enough for it to be there, apparently.



    If you look at the chart (starting with "Shares repurchased . . .) in the main body of the article, it clearly states the the Shares column is in "000s." Typical accounting speak for "Add three zeros to the end of each number in the column." So 58,661 has 000 appended equaling 58,661,000. 

    HTH

    ciao—?

  • Reply 19 of 47
    gtbuzzgtbuzz Posts: 129member
    I don't blame Apple for having a stock buyback program and it is not bad business. As a long time investor, I believe AAPL is reasonably priced and I have been adding shares. The only thing that is keeping me from adding more is a % limit I have imposed on any particular stock. One never knows what is going to happen, but I have faith in Apple management and its employees. I lack faith in Wall Street. WS runs a shell game at best. Past performance is no indication of future performance, but you have to admit they have a lot of $'s.
  • Reply 20 of 47
    Quote:

    Originally Posted by AceGreen View Post



    "Apple spent $5 billion buying back 58,661 shares at an average price of $85.23"



    That would be 5 Million worth.

     

     

    Quote:

    Originally Posted by Quazze View Post



    "During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23."



    58,661 (shares) x $85.23 (stock price) = $5,000,000 (million -- not BILLION)



    Apple would need to purchase 58,602,906 shares (at $85.23) to reach $5,000,000,000.00.

     

     

    Quote:

    Originally Posted by elmoofo View Post



    "During the June quarter, Apple spent $5 billion buying back 58,661 shares at an average price of $85.23."



    Wanna check that math?

     

     

    "(in thousands)"

     

    http://photos.appleinsidercdn.com/AAPL.Q314.buybacks.0072514.png

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