Betting on Yourself: Apple “Expects the Stock Price to Climb”? Or Maybe Apple Just Knows a Good Deal When It Sees One

http://9to5mac.com/2013/07/25/apples-accelerated-aapl-stock-repurchasing-suggests-it-expects-the-stock-price-to-climb/

Brief commentary aside (and Ben Lovejoy’s point on Apple being bullish on share price is well-taken), the speed (quantity) of Apple’s buyback activity so far is really something else. As most of you recall, Apple has authorization to buy back $50B in shares. If Apple has the go-ahead to buy back over 100M shares (assuming an average per-share price of $500 or less), for it to have bought back over 35M shares so far (net diluted share reduction) makes one wonder exactly how many shares Apple will buy from say, mid-2014 until the end of calendar 2015. Unless Oppenheimer’s mention of “end of fiscal 2014” wasn’t an accident. At this point I wouldn’t be surprised if Apple bought back over 50M, maybe even 60M shares by the end of September (although they wouldn’t necessarily be all deducted against net diluted share count as of the end of Apple’s fiscal 2013).

And since I’m on the topic of buybacks, a quick note on Apple’s “cash” balance. ¹  Oppenheimer mentioned an imposing $106B overseas (i.e. can’t be used for buybacks), something like $144B in total cash as of the end of fiscal Q2, and a net increase in cash of close to $2B as of the end of fiscal Q3, against about $17B in bond financing debt.

Will Apple do another round of bond financing, will it use some of the $40B or so available domestically, or a combination of both? We’ll see.

Also somewhat interesting: The more quickly Apple meets its $50B quota (of course, it can always buy back the remainder of its allotment more slowly over the next several quarters), the more quickly Apple also reduces its total “dividend obligations”). So if the cash situation allows it, Apple can not only buy back 10% or more of the company relatively quickly, it can also cut dividend payments by the same amount, saving $3.05/share/quarter (or $12.20/yr at current rates) on all retired shares. Not a bad way to eventually save a billion or so a year…or, put another way, deploy that billion or so saved for any number of other uses. Ironically, given enough time, the dividend savings will “finance” the current buyback.

But maybe that’s a subject for another post…

¹ I’m going with Oppenheimer’s “version” of cash here. And if he says it’s cash, I’m assuming he means those assets that also be readily converted to cash (such as those securities holdings) if need be.

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