Historic Apple Takeover Keeps Investors Captivated

(Bloomberg) — Apple Inc. has paid more than $550 billion to buy back its own stock over the past decade, more than any other U.S. company, and the tech juggernaut shows no signs of slowing down.

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Even with the stock under pressure in recent days due to production delays of its new handsets, Apple has fared better than other megacap tech companies in this year’s bear market. Strong earnings and generous redemptions have become central to the investment thesis, making the stock more attractive in turbulent times.

Shares fell 0.4% on Tuesday.

“That’s how they get the safe haven, gold standard perspective of investors,” said Gene Munster, who covered Apple during a 21-year career as an analyst before to co-found the venture capital firm Loup Ventures. “When they continue to come forward and generate the kind of money that they do and buy back their own shares, that sends a strong message and I think they will continue to do so as much as they can.”

The next indicator for investors of Apple’s appetite for its own stock will come in April, when the company typically completes its buyout clearance. It has added $90 billion to the program in each of the past two years. It’s still generating the profit needed to replenish its bank account: It was the only megacap to rally on the back of its results this quarter, and the report prevented analysts from drastically cutting estimates, unlike widespread cuts among its peers .

Neutral net cash

Even with slowing economies around the world, demand is still strong for Apple’s most expensive iPhones, analysts say. The problem now is manufacturing delays due to Covid lockdowns in China, leading to what analysts say are record wait times for deliveries just at the start of the holiday shopping season. While this may affect short-term earnings, there is no evidence that it hurts the stock’s long-term profitability.

Apple has been hoarding cash for years under co-founder Steve Jobs, and CEO Tim Cook has been working on ways to better invest the cash and return it to shareholders. Apple, which ended the last quarter with $169 billion in cash and marketable securities, aims to have net cash – cash minus outstanding debt – of zero going forward.

“It was an aggressive bet they made, something Steve Jobs would never have done, and it paid off well for the company and its investors, in part because the stock performed well for this period,” Munster said of the share buybacks.

Apple, the world’s largest company with a market value of nearly $2.3 trillion, is also in a class of its own when it comes to stock buybacks.

In two of the past five years, it has spent more than $50 billion as the second-highest buyer. It spent nearly $90 billion last year, roughly equivalent to the market value of Citigroup Inc.

Investors like buyouts because they reduce the number of shares in a company and thus increase earnings per share. The risk is that a company overpays by buying when the stock is overvalued. Apple, however, says it has paid an average price of $47 per share since it began buying back shares a decade ago, compared to the current share price of $143.63.

Apple has avoided using its cash to make big acquisitions, at a time when scrutiny of the size and influence of megacap tech companies is increasing. The bulls say buyouts have been a good strategy for the company, until it directs its resources to a new product category like autos, which may prove more capital-intensive.

“Generally, investors would like to see cash used to generate growth,” said Lewis Grant, senior portfolio manager for global equities at Federated Hermes Ltd. “But when you look at a company the size of Apple and the amount of cash that we’re really talking about, deploying tens of billions of dollars every year to drive growth may be overly ambitious.

Apple also pays a cash dividend, but that’s almost an afterthought. The quarterly payout of 23 cents per share is equivalent to 0.6% of the share price, one of the lowest returns on the S&P 500 index. Apple raised the payout by a penny in May and said that he was committed to annual increases.

However, investors don’t seem too concerned about how the company chooses to repay capital, as long as they continue to do so.

“In fact, we don’t care how you return capital to us,” said Mark Stoeckle, CEO of Adams Funds, adding that Apple would have to increase its dividend “by a huge amount” to get a return that would matter. “We just don’t see that happening, so we’re just as happy with the stock buyback.”

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Analysts at Activision Blizzard Inc. are increasingly positive about the video game maker, seeing the stock’s value even as the planned acquisition of Microsoft Corp. seems more and more risky. At least six companies raised their ratings in November, including three on Monday.

The trend raised Bloomberg’s consensus rating on the stock – a ratio of its buy, hold and sell ratings – to 4.6 out of 5, its highest since January, and up from a low. of April of 3.94. This made Activision nearly as popular with Wall Street analysts as Take-Two Interactive Software Inc., which has a consensus rating of 4.57, and above Electronic Arts Inc., which has a consensus rating of 4.29.

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