Apple's (AAPL) New Share Buyback Plan Will Juice EPS
For investors, the share buyback plan has the opportunity to dramatically reduce the shares outstanding, and thereby dramatically increasing earnings per share (EPS).
Currently, Apple has 938,649,000 shares outstanding. If Apple was a buyer of the stock at an average price of $400 per share, the company could buyback approximately 145,000,000 shares using the $58 billion authorization. All things being equal, this would bring the number of shares outstanding down to 793,649,000 shares.
To see the impact of this level of repurchases on EPS, let's suppose the company were to earn the consensus estimate of $51 per share in 2015. This would represent net income of approximately $48 billion based on the current share outstanding. Now, given the effect of the buyback, that same $48 billion in net income, because of the lower share count, would bring EPS to $60.50. That's an increase of nearly 19 percent.
While Apple's aggressive new share buyback plan is clearing intended to decrease the shares outstanding and thereby boost EPS, outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan and unvested restricted stock units all have the potential to dilute EPS and mute the impact of the buyback plan. Apple said it expects to utilize about $1 billion annually to net-share-settle vesting restricted stock units.
All in all, Apple's new share buyback plan has the potential by itself to dramatically juice EPS. If the company can organically grow net income again, this would have a compounding impact.
Shares of Apple have been in an out of positive territory since the announcement after the close Tuesday. They last traded at $402.19, down 1 percent.