Should Apple initiate a stock buy-back?

Thu, Oct 30, 2008

Analysis, Finance, News

Analyst Toni Sacconaghi of Sanford Bernstein suggested today that Apple should use part of its 25 Billion dollars in cash to buy back a good portion of its shares.  Sacconaghi speculates that such a move could increase Apple’s earnings by as much as 75 cents a share in 2009.  This, of course, sounds incredible — but Sacconaghi concedes that such an increase in earnings would only result if Apple planned a massive stock buy-back, somewhere in the range of 20 Billion.

All things considered, I don’t see this happening anytime soon.  Why would Apple spend the majority of its cash reserves in one fell swoop just to gain a few more cents per share for their 2009 earnings?  Apple isn’t the type of company that would spend 80% of its cash reserves for a gain that would largely be ignored by analysts.  Sure, it’s earnings per share would increase, but in evaluating the company, analysts would take that fact into effect as a one times earnings boost.  In other words, a stock buy back leaves Apple as the same company it was beforehand – the fundamentals wouldn’t change!

Jim Goldman over at CNBC has an interesting take on the story:

“There’s a line between hoarding cash, and having a fiduciary responsibility to return some of that wealth to the people who really own this company: its shareholders. Apple shares are among the most manipulated I have ever seen. Fundamentals be damned, this company seems to get crushed just for sport. And Apple is in a position to mitigate that. And should.

The fact is, I agree with Steve Jobs, that Apple should have a huge cash position to stave off tough times, and remain nimble enough to buy what it wants. Apple has been cash-strapped in the past, and probably never wants to feel like it needs a handout for survival again. But $25 billion? At what price investor reassurance? At what price silencing the shorts because the company itself is stepping up to tell the world that if anyone should know what a great investment Apple is, it’s Apple itself?

A buyback made sense back in March. With Apple’s cash generation since, and the non-GAAP megabucks iPhone’s generating now, a buyback makes exponentially more sense today.”

Read the full article over here.


, ,

1 Comments For This Post

  1. Andy Says:

    Great post and some good analysis. I am bullish on Apple long term because of their potential growth and surely some soon to be annoucned capital management moves. I have recently bought April calls to try and profit from the their year end up swing. Let seee…

eXTReMe Tracker