Apple announced the unprecedented buyback along with fiscal 2024 second-quarter results that showed that concerns about iPhone sales and China’s weakness were overblown. Apple’s stock rose nearly 6% on the session following Thursday evening’s release, with more records set for its installed base of active devices and services in Q2. Apple also exited the quarter with roughly $162 billion in cash, equivalents, and marketable securities on the balance sheet, with a net cash position of about $58 billion after debt. Apple aims to be net cash neutral over time, returning excess cash to shareholders via buybacks and dividends.
Apple leans more heavily on the buyback side of capital returns, leading some to argue that the stock is priced too high given its revenue growth rate. However, proponents believe that Apple’s ecosystem strength and customer loyalty provide a deep competitive moat, fueling the company’s cash generation machine. Despite potentially lacking in topline growth, Apple’s cash generation could surprise to the upside in the coming years as artificial intelligence is integrated into devices, prompting upgrades and potentially catalyzing new product categories.
To understand the impact of Apple’s buybacks on earnings, one can look at the hypothetical scenario of Apple delivering $100.62 billion in net income while repurchasing $100 billion worth of shares each year. This would lead to a growth in earnings and share price at a rate of nearly 3.7% per year, highlighting the value of reducing outstanding shares. When operational improvements are factored in, the expected five-year compounded annual growth rate (CAGR) could reach about 8.5%, with a total annual return closer to 9% when factoring in a dividend yield.
Apple is projected to witness growth in free cash flow from about $100 billion in 2023 to over $140 billion by 2029, potentially allowing for share repurchases greater than $100 billion on average in the coming years. This abundance of cash could benefit patient long-term shareholders, as the company’s Vision Pro and potential acceleration in the hardware refresh cycle may drive further growth. With a fortress-like balance sheet and strong brand loyalty, Apple is seen as a less risky investment compared to the average stock, offering an attractive risk/reward profile.
Overall, Apple’s ability to weather various business cycles and economic storms, combined with its strong cash flow and net cash position, position the company to take advantage of growth opportunities. As a safe-haven name, Apple’s potential upside from innovations such as AI integration and the Vision Pro, as well as growth in services, makes it an appealing investment. With consistent performance over the years and a focus on returning value to shareholders through buybacks and dividends, Apple remains a compelling long-term investment opportunity.
