Shares of Apple (NASDAQ:AAPL) went on a tear on Friday, fueled by a solid earnings report, an enormous stock buyback plan, a better dividend, and doubtless some pent-up demand for the recently not-so-magnificent stock.
Apple has been the clear laggard among the many so-called Magnificent Seven over the past 12 months or so. Over the past 12 months as of May 2, it has only returned 2.7%, and 12 months to this point, it had fallen about 7% until Friday’s surge.
Apple stock gained about 7% to achieve $185 per share in morning trading on Friday. Here’s a take a look at what drove it higher.
Decent numbers, big buyback
Apple beat earnings estimates for its fiscal second quarter, although its growth rates were still down 12 months over 12 months. Net sales got here in at about $90.7 billion, which is about 4.3% lower than the identical quarter a 12 months ago. Nevertheless, the associated fee of sales fell about 9% to $48.5 billion, which helped Apple’s bottom line. Net income only fell 2% 12 months over 12 months to $23.6 billion, and earnings per share held regular at $1.53 per share.
The technology giant remains to be having sales trouble with its iPhone, nevertheless. Apple’s products revenue, which incorporates the iPhone, was off 9.4% 12 months over 12 months to $66.9 billion.
Nevertheless, the corporate was buoyed by record revenue for its services division, which grew 14% to $23.9 billion. Apple services include subscriptions to Apple TV and Apple Music, amongst others, ads, digital content, cloud storage, and Apple Pay. The services division still pales as compared to the product division, but its growth has been a very good diversifier for Apple, particularly as phone and product sales slow.
Nevertheless, the larger news from the quarter was Apple’s massive stock-buyback announcement. The board authorized the repurchase of $110 billion in company stock. That isn’t only the most important share repurchase commitment by Apple; additionally it is the biggest in U.S. history. The corporate also raised its dividend 4% to 25 cents per share.
“Given our confidence in Apple’s future and the worth we see in our stock, our board has authorized a further $110 billion for share repurchases. We’re also raising our quarterly dividend for the twelfth 12 months in a row,” Chief Financial Officer Luca Maestri said within the earnings report.
Share repurchases are only that. The corporate buys back its shares from investors, giving them a chance to money in in the event that they wish. It also reduces the variety of shares outstanding, which has the effect of boosting the share price and creating more shareholder value because fewer shares for a similar amount of earnings creates higher earnings per share.
Apple saw it as a very good time to make this move as the worth of its shares is comparatively low. The stock was trading at about $173 per share, down 6% for the 12 months, and it has a price-to-earnings ratio of 26 times, which is low for Apple. Apple is being a very good value investor here, profiting from the cheaper price.
Higher times ahead?
The buyback will provide some tailwinds for Apple stock leading as much as what it expects to be higher days ahead. CEO Tim Cook teased an “exciting product announcement” next week, which is anticipated to be recent models for the iPad Air and iPad Pro, in keeping with reports.
Apple also has its Worldwide Developers Conference coming up in June, where it is anticipated to introduce iOS 18, rumored to be one in all the most important software updates in company history. It could definitely drive flagging iPhone sales higher.
Perhaps fueled by these recent products, Apple is anticipating a return to revenue growth within the June quarter, with sales projected to rise within the low-single digits. Thus, while Apple stock has been a laggard over the past 12 months, this could be a very good time to think about buying back in.