RBC Analysts Believe that the $60 Billion Buyback Program of Apple Inc. (NASDAQ:AAPL) Can be Doubled


The most important factor to be determined by Apple Inc. (NASDAQ:AAPL) is that how big its buyback could be. Mark Sue and Amit Daryanani – two analysts at RBC – believe that Apple can afford to make its buyback of $60 billion double. The two analysts say that even after doubling the buyback, Apple will still have a leverage ratio of 1:3 times its EBITDA.

Because of good share prices and bond yields, Apple might opt for a larger buyback. The possibility of a larger buyback for Apple is also high due to the interest Carl Icahn, an Activist investor, is taking in the matter. About 6 months ago David Einhorn, another activist investor, asked Apple to change its capital allocation; therefore, with this scenario it will be interesting to see what Apple does.

According to an analysts’ report on buyback scales of large-cap companies, on average the ratio for Debt/EBITDA for companies with large caps is 2x. This ratio however, is 0.3x for Apple, indicating the largest cash hoard of Apple among other large-cap companies.

It is expected that if Apple can keep its ratio somewhere between 1.3x and 1.8x and increase its buyback to a figure between $50 and $90 billion, if it opts for “incremental debt”. Analysts believe that by doing so Apple will take its EPS up by 10 to 17% with stock value at $50 – $90. If, however, Apple takes its leverage up to 1.8 times, the company then can afford a buyback of more than 170 million of its shares, which becomes equal to 18% of Apple’s float.

Apple has a $60 billion buyback program till 2015. It has already bought back shares worth 17.95 billion out of their approved target of $60 billion. The dividend was increased by the board up to $3.05 back in April. This dividend gets its funding from a $17 billion debt that was recently increased by Apple. The company currently holds a cash reserve of $147 billion (US$41B, International $106B).

With a surging of 2.12% on a 6.01 million share trading volume, shares of Apple Inc. (NASDAQ:AAPL) are trading, currently, at 513.00.

Apple Buyback Program
Apple Buyback Program