Apparently Apple (AAPL) has somewhat taken the advice of Carl Icahn by accelerating the stock buyback after the stock slumped following reporting holiday sales. According to the Wall Street Journal, CEO Tim Cook revealed during an interview that the company had purchased a whopping $14 billion worth of stock in the two weeks since the earnings results sent the stock plummeting below $500.
Remember that the number is impressive in size alone considering Apple generated $22.7 billion in operating cash flow during the December quarter. The company has previously spent over $40 billion on returning capital to investors, but the $14 billion spent in a couple of weeks is a major step up in spending.
Don't look now, but Google (GOOG) has a potentially higher enterprise value, or EV, considering the smaller cash balance. According to the Q413 report, Google has roughly $48 billion in cash and marketable securities giving the company an EV of around $340 billion.
With a market cap of around $460 billion and cash and marketable securities around $160 billion prior to this news, Apple had an EV of only $300 billion. The below chart highlights the merging EVs between the two tech giants:
Unfortunately the chart excludes the long-term marketable securities of Apple that accounted for roughly $118 billion of the total cash in the last quarter. Remember, these are easily liquidated government securities and other investments that the company plans to hold beyond one year. Still, the chart provides an ample example of how the valuations have merger over the last 18 months.
Net Payout Yield
The combination of a large stock buyback and a solid dividend provides shareholders of Apple with a solid return of capital. The Net Payout Yield provides for a calculation of that return for investors looking for more than a straight dividend payment. Similar to a dividend yield, the higher this yield the more attractive the stock:
With the stock yielding nearly 8% prior to this accelerated stock buyback, investors are getting one of the best corporations with one of the highest yields in the market.
Apple is extremely cheap trading at an EV of roughly 8x forward earnings. The substantial buyback in the last couple of weeks should provide a boost to earnings going forward making investors happy. Similar to the Bernanke put of the last couple of years, it is wise to stay on the side of a large corporation with a substantial war chest that it is using to repurchase shares. Apple has sufficient capital to ensure it trades at higher levels than the current subpar market multiples. With Google technically worth more than Apple now, it is very clear which stock offers the better value at these levels. Investors should follow the company and Icahn and buy shares at the $500 level.
Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.