How GE may out­spend and out­shine Ap­ple on ma­jor stock buy­backs in 2016

Financial Mirror (Cyprus) - - FRONT PAGE -

In­vestors love div­i­dends and buy­backs as the top two meth­ods of re­turn­ing cap­i­tal to share­hold­ers. Div­i­dends can make up more than half of to­tal re­turns through time, but buy­backs can act di­rectly to cre­ate sup­port for the stock while giv­ing the ex­ist­ing share­hold­ers larger and larger stakes in the com­pany.

24/7 Wall St. re­cently showed the 18 com­pa­nies that would dom­i­nate the buy­back scene in 2016. Ap­ple Inc. (NAS­DAQ: AAPL) could be the most dom­i­nant at $20 bil­lion in buy­back money be­ing spent in an ef­fort to fin­ish its $200 bil­lion cap­i­tal re­turn plan over the next year. While Gen­eral Elec­tric Co. (NYSE: GE) is al­ready com­mit­ted to a mas­sive buy­back to shrink its float, the re­al­ity is that GE could also hit $20 bil­lion in buy­backs in 2016 alone. Un­der some cir­cum­stances, GE may mas­sive num­ber.

In late 2015, GE in­di­cated its Syn­chrony Fi­nan­cial share ex­change would re­duce the out­stand­ing float of GE com­mon stock by about 6.6%. This acted like roughly $20.4 bil­lion in GE stock buy­backs. If you use a straight line to the GE plans, it looks like Jeff Im­melt could spend an­other $20 bil­lion or more, just in 2016 alone. GE said at that time of the Syn­chrony con­ver­sion and again at the time of its div­i­dend an­nounce­ment in De­cem­ber:

With the com­ple­tion of this ex­change of­fer and progress to-date on the GE Cap­i­tal Exit Plan, GE is on track to re­turn more than $90 bil­lion to in­vestors from 2015 to 2018 with more than 90% of earn­ings com­ing from high-re­turn in­dus­trial busi­nesses. GE re­mains on track in its plan to re­turn more than $90 bil­lion to in­vestors in div­i­dends, buy­back and the Syn­chrony ex­change through 2018.

On top of the Syn­chrony deal, GE just re­cently has re­ceived reg­u­la­tory clear­ance

even

dwarf

that fi­nally to sell its ap­pli­ances unit. It re­ceived the breakup money from Elec­trolux and will be get­ting an even larger price than the Elec­trolux deal that was blocked by reg­u­la­tors. This is new cap­i­tal, some $5.4 bil­lion, that could be added on top of GE’s buy­backs.

An­other is­sue to con­sider is that GE shares at the $27.75 low in Fe­bru­ary were down more than 10% from the last day of 2015 alone. The stock was last seen back above $30.00, with some an­a­lysts now eye­ing the $35 to $38 range again.

As far as Ap­ple’s role in 2016 buy­backs at $20 bil­lion or so, keep in mind that Ap­ple could al­ways choose to in­crease its cap­i­tal re­turn plan fur­ther. That would likely trump GE’s buy­backs in 2016, if you con­sider the ac­cel­er­ated share re­pur­chases in 2016. That be­ing said, Ap­ple is now un­der fire from the FBI over un­lock­ing the iPhone, and fresh news is out that hack­ers have tar­geted Ap­ple Mac users with so-called ran­somware that could hurt the com­pany’s im­age.

Ap­ple has al­ready spent roughly $3 bil­lion in its first quar­ter of fis­cal 2016, at an av­er­age stock price of $115.45 per share. Ap­ple’s Novem­ber 2015 ac­cel­er­ated share re­pur­chase pe­riod was set to end at or be­fore April 2016, and Ap­ple’s share count dropped on a di­luted ba­sis to 5.594 bil­lion as of De­cem­ber 26, 2015, from 5.881 bil­lion a year ear­lier. Ap­ple also re­cently con­ducted a $10 bil­lion or so debt of­fer­ing.

Ap­ple shares re­cently have come back above the $100 mark, even af­ter be­ing down 0.9% at $102.10 on last look. Ap­ple re­mains a fa­vorite of an­a­lysts, but the con­sen­sus price tar­get keeps drift­ing lower and was last seen un­der $136. Its 52-week trad­ing range is $92.00 to $134.54.

GE shares were trad­ing down 0.5% at $30.32, with a con­sen­sus an­a­lyst tar­get of $32.54 and a 52-week range of $19.37 to $31.49.

If you want to learn more about how stock buy­backs work in ac­tion when they are sub­stan­tial, just look to see why War­ren Buf­fett loves th­ese buy­backs so much. He pretty much says it all.

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