Buyback Program Estimated to Boost Apple's 2014 Earnings per Share by $4.25
If Apple were to follow the advice of investor Carl Icahn and increase its share buyback program, the move would have a quick and significant effect on the company’s stock according to a recent analysis. Analyst Chris Whitmore of Deutsche Bank analyzed a possible financial outcome if Apple were to increase its existing share buyback plan. In his scenario, another $50 billion worth of shares purchased at an average price of $500 would add roughly $4.25 in earnings per share in the company’s fiscal year 2014.
In his estimation, Whitmore saw an increase of roughly 10.5% over the year. He believes that Apple’s current $140 per share of net cash would be enough for the company to undertake such a strategy. In addition, a $50 billion buyback at $500 per share could be self-funding according to the analyst. He noted that interest expenses on debt needed for the buyback would be about $1 billion, which is an amount that would be offset by dividend payments reduced by $1.2 billion, thanks to retiring dividend-bearing common stock.
For these reasons, Whitmore agrees with Icahn, who revealed that he spoke with Tim Cook and advised him to buy back more stock. Icahn didn’t publicly disclose how much stock he believes Apple should buy back but the company’s current plan calls for it to repurchase $60 billion worth of shares through 2015. Icahn also said he is bullish on AAPL stock and has invested $1.5 billion into the company. The support from Icahn as well as growing hype over the anticipated upcoming iPhone event in September has helped shares of AAPL push above $500 last week.
The projections that Whitmore recently published are somewhat similar to those of Amit Daryanani of RBC Capital Markets, who previously said
that he believes Apple could nearly double its current $60 billion share buyback program. Daryanani’s estimates see the strategy adding about $4 to Apple’s fiscal year 2014 earnings per share, representing an increase of about 10%.
Source: Deutsche Bank