Apple Stock Soars on Record Buyback, Earnings Beat

Apple Inc. (AAPL) shares surged 6% on Friday, marking the stock’s best day since November 30, 2022, following the company’s better-than-expected second-quarter earnings report and the announcement of a record-breaking $110 billion stock buyback program. The iPhone maker reported earnings of $1.53 per share on revenue of $90.75 billion, surpassing analysts’ estimates of $1.50 per share on revenue of $90.01 billion, according to LSEG.

Earnings and Revenue

Despite the positive earnings surprise, Apple’s overall sales decreased by 4%, and iPhone sales dropped by 10% year-over-year, indicating a slowdown in demand for the latest generation of smartphones. Apple CEO Tim Cook attributed the quarterly sales decline to a challenging comparison with the previous year’s performance.

The company’s cash flow generation remained strong, with Apple generating $63 billion over the past six months. Additionally, the company’s profit margin is on the rise, providing a positive outlook for investors.

Apple’s services segment is expanding, helping offset much of the weakness in the iPhone unit. The company is confident that product updates, starting with an iPad event on May 7, will drive demand in its hardware business after months of sluggish growth.

Record Buyback and Dividend Increase

In a move to boost investor confidence, Apple announced a 4% dividend increase and a massive new stock buyback program, nearly double its previous target. The $110 billion share repurchase plan is the largest ever by a U.S. company, according to EPFR analyst Winston Chua.

At Friday’s stock price, executing Apple’s full buyback authorization would amount to repurchasing nearly 4% of the company’s shares. The buyback aligned Apple with other U.S. tech giants that have showered investors with cash in recent earnings seasons to soothe concerns about rising investments in generative AI.

The annual dividend will cost about $15.337 billion, so combined with the buyback, Apple will be returning over $125 billion to shareholders. These work out to 4.39% of its $2.856 trillion market cap, although that assumes the whole buyback program will take one year.

Analyst Ratings and Price Targets

Several analysts maintained their positive ratings on Apple stock, with some even raising their price targets. Bank of America reiterated its buy rating and increased its price target to $230 from $225, citing expectations of generative AI features for the iPhone later this year.

JPMorgan and Morgan Stanley also maintained their overweight ratings and raised their price targets, pointing to the company’s resilient iPhone revenues, potential iPad upgrade cycle, and hints at upcoming AI updates. At least 13 analysts raised their target price on Apple, pushing up the median view to $200, which is 15% higher than the stock’s last closing price.

Analysts project revenue will hit $385.78 billion for the year ending Sept. 2024 and $410.88 billion next year. On a run rate basis, this puts its average next 12-month (NTM) revenue forecast at about $400 billion. If the company can continue to make roughly 27.7% FCF margins, free cash flow could rise to $110.8 billion over the next 12 months.

Future Outlook and AI Integration

Apple’s forecast for fiscal third-quarter sales exceeded Wall Street’s modest expectations, signaling confidence in upcoming product updates and their ability to drive demand. The company is planning a new product announcement next week and will likely detail its services growth plans during next month’s developer’s conference.

While Apple has not made significant investments in AI compared to its tech rivals, CEO Tim Cook hinted at the company’s plans to share “some very exciting things” in the near future, fueling expectations of AI integrations at the upcoming annual developer conference.