’s accelerated AAPL stock repurchasing suggests it expects the stock price to climb

Photo: huffpost.comFortunereports that ’s stock repurchase scheme – buying back some of its own shares – is proceeding more than three times faster than scheduled.The company was scheduled to repurchase 10 million shares in Q3. It bought 36 million [...]By my calculation, the company spent $16 billion last quarter ($4 billion in cash, $12 billion through the so-called accelerated share repurchase program) to purchase 36 million of its own shares at an average price of just over $444.IfFortune‘s s are correct, then has alrdy spent almost all of the$17B it borrowedback in April.Accelerating the planned repurchase program makes sense if you expect the stock to cost less now than it will later. In other words, if you’re expecting the stock price to climbIf you’re wondering why a companyawash with cash(now standing at $146B) would need to borrow money, the rson is tax. TheWashington Postfigures in the example we quoted back in April are now out of date, but they give the basic id.Let’s say borrows money at an interest rate of 3percent a yr (which is more than it would probably pay), and uses it to buy back stock at the current price of about $410 a share. ch share that buys back will reduce its annual dividend obligation by $12.20 a share, at the company’s current dividend rate. The interest on the borrowed money would be $12.30 a share — about the same as the dividend. But interest is tax-deductible, and dividends aren’t.
At a 35percent tax rate, the borrowed money would cost $8 after taxes for ch share it bought back. That’s significantly less than the $12.20 after-tax cost of its $12.20 dividend.The buyback programme thus makes financial sense at pretty much any time, but the accelerated pace suggested byFortunesuggests that is very much bullish about its own stock.