Do Apple, Hewlett Packard Enterprise Buybacks Bolster The Bull Thesis?

When betting big on a stock, it's always reassuring when the company itself is buying up shares hand over fist.

That’s exactly the situation for shareholders of Apple, Inc. AAPL and Hewlett Packard Enterprise Co HPE, and Bernstein analyst Toni Sacconaghi Jr. said Tuesday that buybacks play a big role in his bullish thesis on both stocks.

'Few Precedents' For Sustained Buybacks

Apple and Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) likely combined to reduce Apple’s float by roughly 9 percent in the first quarter, Sacconaghi said. Looking ahead, Sacconaghi said Apple will likely continue to repurchase roughly 4-8 percent of its outstanding shares per quarter for at least the next four to six quarters.

Warren Buffett’s recent comments on Apple suggest Berkshire will continue its aggressive buying as well, the analyst said.

“We note that IBM IBM and Buffett accounted for a large percentage of IBM's trading volume in 2011 and the stock fared well during the period, but there are few precedents in our coverage universe of sustained repurchases accounting for 5-percent-plus of trading volumes,” Sacconaghi wrote.

EPS Growth, Stock Support 

Hewlett Packard’s buybacks could account for roughly 7 percent of the stock’s 2018 trading volume, Sacconaghi said. On certain days, Apple and Hewlett Packard buybacks could account for more than 10 percent of the daily trading volume in the respective stocks, he said.

Sacconaghi said this type of aggressive buyback program serves two major bullish purposes: it provides a shot in the arm for EPS growth and provides buying support for the stock on any pullbacks.

Bernstein has a Market Perform rating and $190 price target for Apple and an Outperform rating and $20 target for Hewlett Packard Enterprise.

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Munster: Buybacks Will Help Distinguish Apple From Its Contemporaries