AAPLwill be releasing its fiscal Q1 earnings on Tuesday January Analysts and media are in the usual tug of war as to whether Apple is beginning a slow decline or is only in a pause in revenue growth. On Tuesday evening, we will find out this quarter's installment. AAPL data by YCharts.

Impact of Share Repurchases | Investopedia

One aspect of Apple management has been surprisingly controversial. That is the stock repurchase program. In last quarter's earnings conference call, CEO Tim Cook said:. Of course, Apple is not the only company to have repurchase programs. Other leaders in this are General Electric NYSE: GEMicrosoft NASDAQ: MSFT and drug maker AbbVie NYSE: ABBVbut Apple's surpasses all in its size.

AAPL Stock Buybacks Quarterly data by YCharts. Last July, fellow Seeking Alpha writer Antonio Carradinha, wrote an interesting and well thought-out piece criticizing Apple's share repurchase program. When a company pursues a buyback, it is investing in itself and the firm's management surely thinks that there is no better business than that.

All this is very misleading - notably in Apple's case - by the following reasons:. When a company repurchases shares to prevent or reverse undervaluation the advice to the market is that trading players for some reason are not supporting the supposed potential of the company.

Hopefully this is the case. So Apple directors believe that the current price undervalues either:. While spending billions of dollars with the sole purpose to reduce the number of shares of the company its price has been going down over the last 15 months. For several years, Apple ignored a move by many customers to purchase larger smartphones that were offered by competitors.

Apple continued to grow in this period, but eventually saw the writing on the wall, and in September ofit released the 6 Plus model. Even at that time, it was suggested that Apple would have trouble meeting these sales numbers in the years to come, and this prediction turned out to be true. But there were a couple of reasons for the subsequent retreat in iPhone sales.

First was the huge surge in sales of iPhone 6 model. Second, this was compounded by a historic slowdown in smartphone growth.

Now, however, this is not the case, as the total smartphone market nears saturation, and calendar-year saw negative growth for Apple. Another negative historical factor is the rise of the U.

This has had an additional, and substantial, negative effect on revenues and earnings.

Australian Stock Market Outlook Forum & Discussion | Shareswatch Australia

My point here is that if Apple's share price is down, it has little to do with the repurchase program, and any positive effects of the program have been grossly overshadowed by the negative factors just mentioned. Personally, I believe that the market has frequently been overly zealous in emphasizing the negative plate signals for binary options trading it comes to Apple.

Share Buybacks: What You Need To Know - Sure Dividend Sure Dividend

From the early, pre-iPod days up to now, there are many reporters and analysts who have a prejudice against anything Apple. We need to return to Carradinha's first point noted above to see a fundamental flaw in his reasoning:.

While boosting share price is a potential and desired outcome, all else being equal, it is not the primary purpose of repurchases. Corporations generate cash hopefullyand Apple has generated lots. Steve Jobs held these earnings for a long time because he did not want to find Apple cash-strapped as it had been in earlier days. Additionally, Apple has used cash as a strategic weapon to help suppliers build capacity for cutting edge technology, thus securing assured capacity, unique capacity, and more favorable pricing.

But since then, Apple's available cash has reached such an enormous size that returning it to investors was the only reasonable choice. I am sure that today, Jobs would also be in favor of the current plans. There are basically two ways to return capital to investors; dividends and share repurchase.

Retirees like the extra income from dividends, but many investors would rather not have to pay the income tax on dividends.

They like to see the intrinsic value go up, without having a tax burden. Apple's program strikes a balance using tirana stock market. The buybacks have had one very real impact on the company's financial results. It is very measurable. Just look at how much money do stockbrokers make number of shares in Calendar Q3 September and the latest quarter December Shares and EPS for are split adjusted.

The question is this: What would EPS have been if there had been no buyback? The math is simple.

EPS is simply the profit divided by the number of shares outstanding. If we assume that there were still 6. Now you might argue that the price is not affected because while the larger EPS drives it up, Automatic trade binary option model now has less saved cash.

The reality, however, is that the share price never really reflected cash tax implication for stock buyback hand. These numbers are estimate as I have used the number of shares on date of earnings announcement, not the actual number of shares repurchased which is not so easily available. This number is likely to be slightly higher than what I have used, since there are other factors that may affect the number of shares, such as employee options plans, etc.

There may be other reasons that Apple's stock repurchase program is bad for the company and shareholders. Still, while not an end-all, share repurchases do have two valuable purposes:. Obviously, this cannot increase net earnings overall.

If revenue and earnings go down substantially, then a reduced number of shares will not cure the business problems. There may indeed be other effects, and some may be negative. However, it is not realistic to deny the positive effect repurchases have. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article.

Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Apple Repurchase Program - Positive Effects Jan. Summary Apple will release fiscal Q1 earnings on January Stock repurchase plan has been controversial. The plan has led to significant value improvement.

AAPL data by YCharts One aspect of Apple management has been surprisingly controversial. In last quarter's earnings conference call, CEO Tim Cook said: AAPL Stock Buybacks Quarterly data by YCharts Criticism Last July, fellow Seeking Alpha writer Antonio Carradinha, wrote an interesting and well thought-out piece criticizing Apple's share repurchase program. All this is very misleading - notably in Apple's case - by the following reasons: He then goes on to list six reasons.

What I agree with most is 6: So Apple directors believe that the current price undervalues either: The question then is whether or not it is deluding itself. With the share buyback Apple has aimed to improve earnings per share which is not happening.

There are two errors here. The first is that somehow repurchases must improve EPS. This disregards the historical context of Apple's revenue situation. Revenue drop Another negative historical factor is the rise of the U. Clearly, buybacks in the latter time frames were excellent investments for shareholders! Logical Flaw We need to return to Carradinha's first point noted above to see a fundamental flaw in his reasoning: This Carradinha states yet more clearly here: When a company repurchases shares to prevent or reverse undervaluation … While boosting share price is a potential and desired outcome, all else being equal, it is not the primary purpose of repurchases.

The real purpose is simple Corporations generate cash hopefullyand Apple has generated lots.

Repurchase effect The buybacks have had one very real impact on the company's financial results. Shares and EPS for are split adjusted The question is this: Conclusion There may be other reasons that Apple's stock repurchase program is bad for the company and shareholders. Still, while not an end-all, share repurchases do have two valuable purposes: Return earnings to owners without incurring taxes, and Increase the EPS for a given earnings.

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