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Apple's  (NASDAQ: AAPL  )  new line of iPhones surprised investors and analysts alike. The consumer frenzy over the company's new products crushed almost all expectations of unit sales. The company's global fan base alone represents a huge competitive advantage for the company. 

Apple continues to trade at low price multiples, and the company's share repurchase plan should boost the company's stock price substantially from the existing levels, rewarding long-term buy and hold investors.

Apple's new products are gaining momentum
The durability of Apple's franchise and its installed customer base alone provides a huge margin of safety for Apple investors. Consumers still can't get enough of the phones and they are flying off the shelves. In fact, the iPhone 5s is facing shipping delays due to overwhelming demand. 

The company's 9 million weekend sales of the iPhone 5s and 5c beat its own historical records, which led Apple's CFO, Peter Oppenheimer, to state that revenues for Apple's fourth quarter will be at the high end of its revenue guidance. The newly introduced iPhone 5s is providing Apple enthusiasts and other consumers a compelling reason to upgrade their existing device due to the Touch ID, and it looks like a big positive for the company's earnings.

In addition, Apple is hosting a press event in a week in which it is widely expected to unveil new versions of the iPad and iPad mini. The company should have a blowout holiday quarter with the iPhone 5s and 5c products being marketed across the world in late October and November. 

Buyback will bolster EPS, Coca-Cola is an example
Apple is pretty inexpensive. It is trading at roughly 11 times 2014 earnings, which is a very attractive valuation point for a company with a cult fan base. The company has $147 billion in cash and marketable securities, some of which are being used to repurchase shares of the company. 

Also, the highly outspoken Carl Icahn took a sizable stake in Apple of roughly $1.5 billion, according to The Wall Street Journal. He stated that the company's valuation is cheap, and that the company's share price can go up to $625 without earnings growth, if a sizable repurchases are conducted. Carl Icahn is actively in discussions with Apple's senior management to ramp up its buyback program from $60 billion to $150 billion by taking on additional debt. And he is largely right, the company can raise additional debt at very low interest rates and leverage up its balance sheet.

Icahn's proposed share repurchase plan will not impact the company's cash generation abilities at all. Apple is a cash machine--it generated $43 billion in operating cash flow in the last three quarters alone. And the end result of such a sizable buyback will be major boost to its EPS. Apple's earnings per share in the last twelve months stood at roughly $40, which can move up $45-$50 after a potential increase in its share repurchase program. 

Apple can take a page from Coca-Cola's  (NYSE: KO  ) playbook. The soft-drink maker upgraded its share buyback plan in the fourth quarter of 2012 under which it will buy back 500 million shares outstanding worth almost $19 billion. Coke has a strong record of share buybacks and value creation. Between 2010-2012, Coke bought back an average of 115 million shares per year at prices well below the current market price, and used debt to finance those transactions as well. Just like Apple, Coke has a substantial amount of cash tucked away in its overseas operations, but elected to raise debt financing in the current low interest environment, and avoid paying taxes on repatriated cash.

Apple should move higher despite Google's competition 
Apple's earnings in should increase in fiscal 2014, after a decline in fiscal 2013 due to the onslaught from Google's  (NASDAQ: GOOGL  )  Android OS. Phones running on Android devices managed to pick up to 79% market share in the last quarter, according to IDC estimates. However, Apple's recent release of the new iPhone line and expected iPad launch, should give Google's Android formidable competition.

Apple should trade at much higher earnings multiple than 12, and even if that is not the case, the buyback will ramp up its share prices dramatically. If Apple's EPS moves to $45, the company's share price with its current P/E multiple should move up to $540. And if Mr. Icahn manages to convince Apple's board for a higher buyback, the EPS can surge to $50, which should boost the company's stock price to $600.

Even if there is no earnings growth for Apple, which is a very, very conservative assumption, the company's stock should move up higher due to the buybacks, irrespective of the size. Apple's low valuation should lead the company to buy back gobs of its own stock. Done intelligently, share repurchases are a great way to reward long-term investors of the company.

More compelling ideas from Motley Fool
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