Goldman Sachs dumps all over Apple's stock buyback plan

REUTERS/Rick Wilking

• Apple is reportedly planning a major buyback programme, but Goldman Sachs isn't convinced it will increase the company's share price.
• "Buybacks have become a less dependable way to predict future stock performance in recent years (as their popularity has grown)," Goldman analyst Rod Hall wrote in a note this week.

Apple may be announcing a capital return program (stock buybacks and dividends) worth up to $300 billion on May 1, but it won't drive the stock, according to a note from Goldman Sachs seen by Business Insider.

The note, from analyst Peter Callahan, says that estimates for iPhone X sales are falling, leaving only the capital return program as "a very key part of the remaining bull case" for buying AAPL.

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Indeed, as Business Insider reported a few days ago, at least two Wall Street and City analysts believe that Apple is about to add up to $100 billion to its ongoing dividend/buyback scheme, creating a $300 billion giveaway to shareholders, and that capital returns - not product sales - will be the main driver of the stock in the next few months.

But there is a problem with that, Callahan says. Another Goldman analyst, Rod Hall, has performed an analysis looking at how buybacks affect the stock price and found that "buybacks have become a less dependable way to predict future stock performance in recent years (as their popularity has grown)." He continues:

"... although Apple has historically done well with their buybacks, we point out that this was mainly in times of improving fundamentals. As we look to the horizon now we see a less clear path to better financial performance than consensus is predicting. As a result, we would not recommend that investors focus on expected increased buybacks as the main reason to own the stock."

That's a bruising blow for Apple, if you believe that without good news on the product/iPhone sales side, and absent a dramatic M&A move, the stock buyback story was the only thing driving the share price.

Get the latest Goldman Sachs stock price here.