What Impact Could Apple's $100 Billion Stock Buyback Program Have On Its Stock Price

Apple announced on May 1 that it would increase its stock buyback program by $100 billion to $310 billion. The $100 billion is a significantly larger amount than Apple has ever announced before, but that isn’t surprising given the new tax law that will allow the company to bring overseas cash back at a much lower tax rate.

While there was no timeframe given for when the $100 billion will be spent, it would not be surprising to see Apple be aggressive in its purchases. In theory the faster it goes the lower the share price should be, and therefore a larger impact to the company’s EPS.

Apple spent $29 billion and $33 billion in fiscal 2016 and 2017, respectively. However, it has already spent $33.5 billion in the first half of fiscal 2018, with $23.5 billion spent in the March quarter alone. It appears that there is a chance the $100 billion could be spent in one year .

Apple was also aggressive buying back shares in April. At the end of the March quarter the company had 5,025 million basic shares (these don’t take into account the dilutive impact from stock options or restricted stock). In the 10-Q filing there were only 4,915 million, or 110 million shares as of April 21. Assuming an average price of $170 in the three week period, Apple would have spent $18.7 billion.

What $100 billion would do to EPS based on a $200 stock price

Apple’s shares closed at $188.59 on Friday after increasing $20 since it announced its March quarter results on May 1, the $100 billion buyback program, a 16% increase to its dividend and Warren Buffett announcing that Berkshire Hathaway had increased its holdings by almost 50% in the March quarter. Assuming a $200 stock price for the $100 billon the following is the impact to the number of shares, EPS and stock price. Note that Apple still had $10.4 billion remaining in its previous buyback program to be spent, which I have not included in these calculations as it represents about 1% of Apple’s market cap.

• $100 billion spent at $200 per share buys back 500 million shares
• There were 5,068 million diluted shares outstanding at the end of March
• There would be 4,568 million shares at the end of the buyback program
  • This does not take into account the increased number of shares due to a higher stock price in the diluted share calculation
• This would decrease the share count by 9.9%

• The average fiscal 2019 EPS estimate is $13.25
• Assuming no other impacts, the EPS estimate would increase by 9.9% to $14.56
• At the current share price of $188.50 the PE ratio is 14.2
• Using the $14.56 in EPS and the same PE multiple the stock would be $207

• Note that the stock’s market cap would essentially stay the same at about $950 billion

Note also that using a $210 stock price to buy back the shares doesn’t impact the EPS result by much. It would decrease by $0.07 to $14.49 and even at $220 it only falls another nickel to $14.44.

Buyback announcement history

Apple announced the start of its buyback program in March 2012 with a $10 billion commitment to be done by September 2015. Since then the company has updated its buyback program and dividend amounts in April when it reports March quarter results. The latest announcement increased the buybacks to $310 billion, and below is a history of its buyback announcements.

• March 2012 to be done by September 2015: $10 billion
  • Completed by the June 2013 quarter

• April 2013 to be done by December 2015: $50 billion for a total of $60 billion
  • Completed by the September 2014 quarter

• April 2014 to be done by December 2015: $30 billion for a total of $90 billion
  • Completed by the June 2015 quarter

• April 2015 to be done by March 2017: $50 billion for a total of $140 billion
  • Completed by the December 2016 quarter

• April 2016 to be done by March 2018: $35 billion for a total of $175 billion
  • Completed by the December 2017 quarter

• April 2017 to be done by March 2019: $35 billion for a total of $210 billion
  • On track to be completed by the June 2018 quarter

• April 2018 with no specific timeframe: $100 billion for a total of $310 billion

Accelerated Share Repurchase or ASR program history

Apple has used Accelerated Share Repurchases or ASR programs for almost $73 billion of the $199.6 billion since August 2012. An ASR is a method where the company pays an investment bank to deliver a certain number of shares upfront. One benefit is that a large amount of shares can be “bought” by the company quickly, but a downside is that it has to pay the investment bank a premium to take on the risk of buying them in the open market.

Over the past six fiscal years the largest ASR program Apple has initiated was $12 billion. This was done in April 2013 and January 2014, so it wouldn’t be unheard for Apple to enter into some large ASR’s to use a good portion of the $100 billion buyback.

• Fiscal 2012: Total of $1.95 billion
• Fiscal 2013: Total of $12 billion
• Fiscal 2014: Total of $21 billion
• Fiscal 2015: Total of $6 billion
• Fiscal 2016: Total of $12 billion
• Fiscal 2017: Total of $15 billion
• Fiscal 2018: Total of $5 billion