Apple is set to throw billions more in cash at investors as its stock slumps

By Emily Bary

Apple earnings are on deck Thursday afternoon, and they're expected to feature another boost to the buyback program

Apple Inc. shares have been under pressure this year, but investors are likely to get at least one bit of good news when the company reports earnings Thursday afternoon.

More cash.

The consumer-electronics giant typically makes updates to its capital-return policies when it posts March-quarter results, and that means it could soon rain more money on investors in the form of dividends and buybacks.

CFRA analyst Angelo Zino said Apple (AAPL) will up its buyback program by $90 billion, in line with what it did in each of the past two years. But the company's dividend increase could be smaller: Zino projects a 3% dividend hike, compared with a 4% increase last year and a 5% bump the year before that.

Apple earnings: iPhone sales in focus as spending pressure, China competition heat up

Morgan Stanley analyst Erik Woodring also said not to expect a "meaningful deviation" from past patterns, suggesting the possibility of a $90 billion buyback increase as well, along with a mid-single-digit increase to the company's dividend.

In 2018, Apple announced a target to become net-cash neutral over time, and it's opting to return cash to shareholders rather than dole out big sums on blockbuster acquisitions.

The company had $172.5 billion in cash, equivalents and marketable securities on its balance sheet as of the end of December. Apple also had $108.0 billion in debt on its books, largely dating back to when it borrowed money for dividends and buybacks instead of bringing back overseas cash. That translates to a $64.5 billion net cash position.

Apple hasn't specified what "over time" means as it strives for that net cash goal, and Woodring said he doesn't think the company will hit the target anytime soon.

"We'd highlight that our forecast implies Apple generates more than $80 billion of [free cash flow] per year through the next five years, suggesting that it's unlikely Apple reaches net cash neutral any time in the foreseeable future," he wrote.

The capital-return announcement will come as Apple's stock has gotten off to a sour start to the year, falling 12% over the course of 2024 to date, as the S&P 500 SPX has advanced 5%.

Woodring has warned that the stock faces a "tricky setup" ahead of earnings, since Apple is expected to top March-quarter expectations but come up short on its forecast for the June quarter. But that prospect might already be reflected in the stock's price.

See also: What Apple investors should make of stock's 'tricky setup' ahead of earnings

"As a result, there's a chance Apple could see a relief rally/squeeze higher on a 'better-than-feared' earnings report/guide," Woodring wrote in an April report. "This creates a tricky setup, and one we don't believe investors necessarily need to step in front of."

For the March quarter, analysts tracked by FactSet expect the company to post $1.51 in earnings per share, compared with $1.52 a year before. But revenue is expected to fall to $90.4 billion from $94.8 billion, with that prior-year period benefiting from meaningful pent-up iPhone demand as supply pressures lessened.

The consensus view calls for $46.3 billion in iPhone revenue, down from $51.3 billion a year earlier.

Apple is dealing with a number of challenges, including steeper competition in China and rising consumer-spending pressures globally.

But Bernstein's Toni Sacconaghi recently highlighted a low bar for Apple as he turned bullish on the stock earlier this week following a six-year stint on the sidelines.

Read: After being neutral on Apple's stock since 2018, here's why one analyst changed his tune

The consensus view calls for $83 billion in revenue for the June quarter, though investors might be anticipating a forecast more along the lines of $80 billion, he said.

While Apple doesn't give specific numbers as guidance anymore, it does offer insights about how results could stack up on a relative basis. Therefore, if investors get the sense Apple is guiding to revenue north of $80, there could be some relief on Wall Street.

"Tactically, expectations are low," Sacconaghi wrote. But guidance "above or below" the $80 billion mark could be "a clearing event forthe stock, similar to 2023 and 2019," he added.

The main driver for Apple's stock, though, likely isn't near-term financials or the capital-return update. Apple has been quieter than pretty much the whole rest of the technology world when it comes to artificial-intelligence initiatives. This has weighed on the stock even though Apple already deploys AI across its products, just without always using the term.

But Chief Executive Tim Cook has been teasing a forthcoming AI announcement, and analysts think that could come at the WWDC conference in June. Could that get the stock to "re-rate," or fetch a higher multiple from investors?

Read: Apple just did something unusual. Can it help the stock amid growth woes?

"Hedge-fund investors are increasingly warming up to the opportunity of the AI upgrade cycle, but the uncertainty still pertains to whether the upgrade cycle starts with iPhone 16 in September 2024 or iPhone 17 in September 2025," JPMorgan's Samik Chatterjee wrote.

Chatterjee is bullish on Apple shares, though for his part, he thinks the next big upgrade cycle will be driven by the iPhone 17 over a year from now.

-Emily Bary

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05-02-24 0850ET

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