Apple is on course to double its stock-repurchase program

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Apple is on course to double its stock-repurchase program

The company's aggressive stock-repurchase program has been a key element of the company's investment story in recent years. It is a cash-neutral position and it wants to reach a cash-neutral position over time, largely via the return of capital to holders via buybacks.

Apple has returned more than 100% of the free cash flow to investors over the past four fiscal years, mostly via buybacks. In a research note, Toni Sacconaghi said Apple could continue buying back between 3% and 4% of its shares each year through 2026, while growing its dividend 10% a year, without taking any net debt on its balance sheet. That would reduce the share count by about 15% from the current level, and get the company to its target of zero net cash.

In recent trading, Apple shares were up 2%, at $154.08. The S&P 500 was down 0.2%. Apple s ongoing buyback program gives a clear path to high single digit EPS growth or better over the next five years, assuming its hardware revenues do not decline and its service segment grows at historical mid-teens, Sacconaghi writes. He says Apple could keep its current buyback pace through 2035 if it had the willingness to lever up to gross debt twice that of earnings before interest, taxes, depreciation, and amortization, or Ebitda. He adds that Apple could drive per-share earnings growth, while buying back up to 35% of the outstanding shares. The analyst notes that Apple has increased pretax income by 10% and earnings per share by 19% from 2013 to 2021, thanks in large part to buybacks. Sacconaghi keeps his Market Perform rating on Apple shares. While Apple's ongoing buyback has the potential to drive solid EPS growth, we believe that Apple's multiple will be most influenced by its top line growth, which we believe is likely to be low-to-mid single digits longer-term, which makes it difficult to gauge the strength of the iPhone cycle, and there is no obvious catalyst for expansion in FY 2022, he writes.