Apple's Stock Buybacks or Repurchases

Stock Buybacks/Repurchase

Stock buybacks or repurchase is exercised by companies for a variety of reasons including to increase EPS, undervalued stock, mergers, takeovers, acquisitions, and stock options. Over the past few years, companies have been buying back stocks in record-breaking figures. An example of a company that has recently exercised stock buyback or repurchase is Apple Inc., which recently launched a $300 billion stock buyback program. In the 2017 financial year, Apple repurchased some of its stocks from shareholders through privately negotiated and/or open market transactions. Apple’s stock repurchases program has been influenced by various factors in relation to enhancing the firm’s profitability and growth. First, the company launched this program to help buyback undervalued stocks or shares. Apple considered stock repurchase as an ideal measure toward scooping up its undervalued shares (Shen, 2017). Secondly, Apple engaged in stock buyback in 2017 to help boost its EPS and enhance shareholder value across all its operations.
In light of the reasons of the stock buybacks and its impact on the company’s profitability, Apple made a good choice. Despite being one of the leading technological firms worldwide, the firm’s stocks have remained relatively cheaper in the wider market. Apple’s profit and earnings (P/E) multiples are significantly low in comparison to those in the market. It’s estimated that Apple’s P/E multiples are at 19 times current earnings and 14 times forward earnings in comparison to S&P 500’s 25 times earnings (Tonner, 2017). Therefore, Apple made a good decision to help boost its P/E multiples through stock repurchases that are geared toward recapturing undervalued stocks, lessening shares outstanding, and enhancing EPS.
One of the observations from analysis of Apple’s financial statements and/or footnotes, the stock repurchase program in May 2017 was a continuation of a program that had earlier been launched by the company. In this regard, the May 2017 announcement was an indication of Apple’s commitment to increase its share repurchase from $175 billion to $210 billion. This implies that the company was seeking to enhance the benefits associated with stock buybacks/repurchases with respect to scooping up undervalued shares and boosting EPS. The second observation from Apple’s financial statements and/or footnotes is that the total open market common stock repurchases in 2016 exceeded those of 2017. There was a slight decline in the total common stock repurchases in 2017 in comparison to 2017 i.e. from 167,567 to 134,832. Therefore, the company had more stock repurchases in the 2016 financial year as compared to the same period in 2017. Third, there was a significant decline in the number of shares in the common stock in open market that were repurchased by Apple in each of the four quarters in 2017. However, the major decline occurred between the first and second quarter of the 2017 financial year.
Based on analysis of Apple’s financial statements, the announcement in May 2017 of increased expenditures in the firm’s stock buybacks or repurchases had positive impacts on its stock value. The market seemingly reacted positively to the buyback announcement as evident in the fact that Apple’s shareholders’ equity increased as compared to the same period in the previous financial year. The stock buyback announcement in May 2017 increased the value of Apple’s shares. The increase in the value of Apple’s stock following the announcement is attributable to the fact that the buyback enhanced the scarcity and value of Apple’s shares. By the end of this financial period, Apple’s stock increased dramatically because of increased buyback of its shares. The increase in the value Apple’s stock contributed to improvements in its P/E since the announcement helped the company to regain and retire undervalued stocks and increase EPS.
References
Shen, L. (2017, May 3). Apple is Now Returning More Cash Dividends to its Shareholders Than Any Other Company. Fortune. Retrieved April 6, 2018, from http://fortune.com/2017/05/03/apple-dividend-2017/
Tonner, A. (2017, May 31). Are Apple’s Stock Buybacks Still Working for Investors? The Motley Fool. Retrieved April 6, 2018, from https://www.fool.com/investing/2017/05/31/are-apples-stock-buybacks-still-working-for-invest.aspx