Price surge due to large-scale repurchase

stock apologize (NASDAQ:AAPL) was on a tear Friday due to a solid earnings report, a massive stock buyback plan, a high dividend, and pent-up demand for its recently not-so-big stock.

Apple has been the laggard among the so-called Magnificent Seven for the past year or so. As of May 2, it had returned just 2.7% over the past 12 months and was down about 7% year-to-date before Friday’s surge.

Apple shares rose about 7% in Friday morning trading, reaching $185 per share. Let’s see which is higher.

Decent numbers, great buyback

Apple beat earnings estimates for its fiscal second quarter, but its growth rate still declined compared to the same period last year. Net sales were approximately $90.7 billion, down approximately 4.3% compared to the same period last year. But cost of sales fell about 9% to $48.5 billion, helping Apple’s bottom line. Net income fell 2% year over year to $23.6 billion, and earnings per share remained stable at $1.53 per share.

However, the tech giant is still struggling to sell the iPhone. Apple’s product revenue, including iPhone, fell 9.4% year over year to $66.9 billion.

But the company got a boost from its services division, which posted record revenue of $23.9 billion, up 14%. Apple services include subscriptions to Apple TV and Apple Music, particularly advertising, digital content, cloud storage, and Apple Pay. Although the services segment is still small compared to the products segment, its growth has been a good diversifier for Apple, especially as phone and product sales have been sluggish.

But the bigger news this quarter was Apple’s announcement of a massive share buyback. The board approved repurchasing $110 billion of the company’s stock. Not only is this Apple’s largest share buyback commitment; It is also the largest in U.S. history. The company also raised its dividend by 4% to 25 cents per share.

“Given our confidence in Apple’s future and the value of our stock, our Board of Directors has authorized an additional $110 billion for share repurchases. We are also increasing our quarterly dividend for the 12th consecutive year,” Chief Financial Officer Luca Maestri said in the earnings report.

That’s what buybacks are for. The company buys back shares from investors, giving them the opportunity to cash them out if they wish. It also reduces the number of shares issued, which has the effect of raising stock prices and creating shareholder value because the number of shares is lower for the same revenue, thereby increasing earnings per share.

Apple saw this as a good time to take this step because its stock value was relatively low. The stock is trading at about $173 per share, down 6% this year, and has a price-to-earnings ratio of 26, which is low for Apple. Apple is taking advantage of its low prices to become a good value investor.

Will better times come in the future?

This buyback should provide a bit of a tailwind for Apple stock, leading to better days ahead. CEO Tim Cook has reportedly teased “exciting product announcements” next week, which are expected to be new iPad Air and iPad Pro models.

Apple will also be holding its Worldwide Developers Conference in June, where it is expected to showcase iOS 18. iOS 18 is said to be one of the biggest software updates in the company’s history. This could certainly boost sluggish iPhone sales further.

Perhaps driven by these new products, Apple expects revenue growth to pick up again in the June quarter, with sales expected to rise in the low single digits. So even though Apple stock has performed poorly over the past year, now may be a good time to consider buying it again.