In the worst month for big tech since the global financial crisis, a massive buyback may not be enough for Apple Inc. investors.
The market’s reaction to Alphabet Inc.’s earnings release indicates that it will also require massive profits.
Apple, which is seen as a safe haven among the FAANG group, is anticipated to announce a $90 billion share buyback programmed when it releases its quarterly results after the closing on Thursday.
However, this may not be enough to boost the stock. Even after the business announced a $70 billion buyback of Class A and Class C shares.
Google’s parent company’s stock dipped in premarket trade on Wednesday. Investors were more concerned about a quarterly earnings per share miss, slower ad sales in Europe, and YouTube’s poor performance.
Buybacks have become an essential aspect of Apple’s investing strategy, especially during times when technology stocks are volatile.
Repurchase schemes are popular with investors since they reduce a company’s share count, boosting earnings.
“Apple’s free cash flow and stock buybacks have clearly aided the firm more than its contemporaries,” said Bob Shea, chief investment officer at Trim Tabs Asset Management. “Right now, everything is under pressure, and investors are seeking for names with high-quality and long-term free-cash-flow profitability.”
However, with expectations for a large buyback already baked in, Bernstein analyst Toni Sacconaghi believes investors would be more concerned on Apple’s future.
Apple is facing many new headwinds, including Chinese supplier lockdowns, the company’s exit from Russia, currency appreciation, and a squeeze on European consumers, he added.
“While Apple’s continued repurchase programme has the ability to deliver excellent EPS growth,” he said, “we believe that Apple’s multiple will be primarily determined by its top line growth, which we anticipate will be in the low-to-mid single digits over time.”
Even yet, a buyback that exceeds the $90 billion promised in April might help the stock rise. According to Amit Daryanani of Evercore ISI, “there is enough of ammunition for capital returns to accelerate.”
“A better-than-expected authorisation could lead to some post-earnings gain,” says the analyst.
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