Buybacks: Is Apple in a blackout period?

December 22, 2018 by Steven M. Peters

Yes and no. Friend-of-the-blog Dan Scropos searched the Internet for a good blackout backgrounder and came back with this.

 

From Rumor: Buyback ‘blackouts’ mean weak stocks. Fact: Not really by CNBC’s Bob Pisani:

Earnings season is upon us, and once again there are dire warnings that stocks will be weak because companies are entering a “blackout period” where they will not be able to buy back their stock.

As with many old saws on Wall Street, there is a little bit of truth, and some outright untruth, to this idea.

Here’s the truth: There is no federally mandated blackout period. And even when companies have themselves adopted blackout periods, they can get around them.

For starters, most companies [including, conspicuously, Apple] have regular buyback plans. These plans extend to the company, but also to senior executives.

The SEC established rules governing the conditions under which companies can buy back stock: They cannot do so at the end of the trading day (in the last 10 minutes), they have to use a single broker for the trades, they have to buy shares at the prevailing market price, and they can’t be more than 25 percent of the average trading volume over the previous four weeks.

In addition, company executives may have access to inside information, particularly in the period when they are gathering corporate financial information immediately before an earnings report. Most publicly traded companies have established blackout periods that typically restrict trading in shares just prior to the quarter end and immediately after the company reports.

There is no mandated period, but Raymond James has noted that it is typically two weeks prior to the end of the quarter through 48 hours after earnings are released…

A separate SEC rule (it’s called Rule 10b5-1) permits trading during the blackout period providing the companies have set up a plan to buy back stock on a regular, defined basis… In other words, a company — and its executives — can buy back shares during a blackout period, providing they are doing so according to a predefined plan. [more]

For the record, Apple is in the process of returning to investors most of the $252 billion it was sheltering overseas. In May the company announced that it would be buying an additional $100 billion in stock, which the New York Times called “largest increase in its already historic record of returning capital to investors.” You can see the stepped up purchases, starting in fiscal Q2 2018, in the schedule below.

blackout periodClick to enlarge.

My take: Blackout or no blackout, open market purchases of the scale of $20 billion a quarter can only do so much when a company is getting a $300 billion haircut.