Apple to Split 7-to-1, and Change from Growth Investment to Value Play

Jacob Harper  |

Apple Inc. (AAPL) released earnings after the bell on April 23, showing the company beat revenue and earnings projections handily. The real news however, and probably the most significant of the Tim Cook era, was that the company will undergo a 7-to-1 split and repurchase $30 billion in shares, dramatically changing the nature of its stock and its relationship with its investors.

By splitting and repurchasing shares, Apple is encouraging a mass influx of investor capital that had heretofore been scared away from a company that sported a share price in the mid $500 range and was loathe to unleash much of its gargantuan $159 billion war chest.

While activist investors like Carl Icahn had long pushed for Apple to repurchase, the company had so far avoided doing so, ostensibly under the reasoning that a tech company’s cash reserves are better spent on long-term research and development not on satisfying stockholder’s desire to see quicker returns on their investment.

By dropping below $100 a share whilst simultaneously taking approximately 7 percent of their shares off the market, CEO Tim Cook has irrevocably changed the nature of Apple as an investment. Apple is no longer acting like a tech upstart – they’re focused on giving value to investors. Quantitative Research Analyst Nicholas Bhandari commented on this, saying that Apple is “a rich company, one that gives money back to its shareholders. Now more retail investors will come to Apple though the buyback,” investors more interested in a safe investment with a cheap share price than an expensive one privy to the volatility of a growth play.

Although the $30 billion buyback will be gradual, it’s already being priced in after hours, indicating the new long-term strategy of the company: Bhandari said, “The buyback runs until the end of 2015, so that shouldn’t create an immediate spike, but it will support it. Apple is no longer a growth play –it’s a value play. That’s doesn’t mean you can’t expect capital appreciation, but, if it is a strong value, you will get that appreciation. Apple’s stock won’t double or triple, but over a couple of years, 30 to 40 percent growth isn’t out of the question. A conservative price target for the end of the year would be $90 a share.”

On the nuts and bolts side, Apple turned in revenue of $45.6 billion and earnings of $11.62 a share, beating estimates of $43.6 billion in sales and earnings of $10.16 a share and even beating their own projections from last quarter. However, the clear news was the buyback and split, which sent Apple shares soaring after market. The split will affect shareholders of record on June 2, and will take effect on June 9.

By 5:30 EST, or an hour after market close, shares of Apple were up 8.2 percent, reversing a 1.31 loss on the April 23 trading day, to hit $568.71 a share.

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