Please ensure Javascript is enabled for purposes of website accessibility

It's Time for a Bigger Accelerated Share Repurchase Program, Apple

By Evan Niu, CFA - May 11, 2016 at 1:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares would likely bottom out if the Mac maker increased its buyback activity.

Marketing chief Phil Schiller introducing the new 9.7-inch iPad Pro. Image source: Apple.

Apple (AAPL 1.62%) shares are now trading near two-year lows in the wake of the iPhone maker's first-ever decline in iPhone unit shipments. While investors fret over the possibility of peaking unit volumes, Apple should take advantage of the recent share weakness and dirt-cheap valuation. The company has been selectively opportunistic with the timing and magnitude of its share repurchases over the past few years.

It's time to do a bigger accelerated share repurchase program (ASR).

What is an ASR?

An accelerated share repurchase program is where a company buys back a large block of shares from an investment bank, which in turn borrows the shares from its clients or third-party lenders. The goal of these programs is to mitigate any potential market impact associated with buying a large volume of shares within a short period of time.

The programs typically last several months, and the total number of shares delivered under the program will vary depending on market fluctuations. Since the volume-weighted average price of the stock within the program's duration typically determines how many shares are ultimately delivered, it's true that ASRs don't necessarily allow a company to load up immediately at current prices. However, if the ASR commences at a time when prices are low, the volume-weighted average price will still be favorable.

Seventh time's the charm

To date, Apple has done six ASRs, the most recent one being just in the fourth quarter. However, the most recent ASR was fairly modest -- only $3 billion. Apple received an initial delivery of 20.4 million shares related to this ASR.



Q4 2012

$1.95 billion

Q2 2013

$12 billion

Q1 2014

$12 billion

Q3 2014

$9 billion

Q2 2015

$6 billion

Q4 2015

$3 billion

Data source: SEC filings and conference calls. Calendar quarters shown.

These ASRs have supplemented Apple's open market purchases quite nicely.

Data source: SEC filings and conference calls. Calendar quarters shown.

As Bernstein analyst Toni Sacconaghi recently noted, Apple shares have shown a strong correlation between share outperformance and increased buyback activity. Apple has never been shy about putting its money where its mouth is. CEO Tim Cook frequently expresses his belief that Apple shares are undervalued, and then proceeds to buy back a boatload of shares. The most recent instance was his recent appearance with Jim Cramer on Mad Money.

If Apple were to aggressively increase its buyback activity with an ASR, to the extent that total repurchases (including both open market and ASR) within a quarter were upwards of $12 billion to $14 billion, the company would very likely put in a bottom for share prices.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$138.93 (1.62%) $2.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.