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Buybacks have helped drive healthy earnings growth for Apple even as the company hasn't seen operating leverage, according to a Bernstein analysis

Apple Inc.'s aggressive stock buybacks have been a major contributor to earnings growth, and one analyst sees a path that would allow the company to continue its strong pattern of share repurchases for some 15 more years.

The smartphone giant $(AAPL)$ could continue to buy back 3% to 4% of its shares through 2026 without adding net debt, according to Bernstein analyst Toni Sacconaghi. By then, the company will have repurchased roughly 15% of its current outstanding share balance, but the company could keep the momentum going for a decade beyond if it takes on leverage to do so.

Repurchasing shares is one way companies can boost earnings as it reduces the number of shares outstanding, which is the denominator used in calculating earnings per share.

For example, Apple reported last month fiscal fourth-quarter net income that rose 62.2% to $20.55 billion, but EPS climbed 69.9% as the number of shares used in the calculation declined by 3.6% to 16.64 billion.

By targeting a leverage ratio of 2 times gross debt to earnings before interest, taxes, depreciation, and amortization (Ebitda), Apple $(AAPL.UK)$ could keep buying back shares at a healthy clip through 2035, enabling it to repurchase about 35% of its current outstanding share count while expanding earnings per share in the process, per Sacconaghi's math.

Apple's stock rose 2.1% in afternoon trading, to edge back toward its Sept. 7 record close of $156.69. It has advanced 16.1% year to date, while the Dow Jones Industrial Average has climbed 17.5%.

The consumer-electronics company set out to be "approximately net-cash neutral over time" back in 2018, and while some hoped Apple might conduct a big acquisition as it burned through its cash pile, the company instead has opted largely for share repurchases and dividend payments.

Apple boosted its buyback program by $90 billion when it delivered its annual capital-return update in April, and the company spent roughly $20 billion on buybacks in its most recent quarter.

Apple's repurchase program is notable because it has allowed the company to deliver growth in earnings per share over recent years, even as the company hasn't realized operating leverage, per Sacconaghi. He notes that Apple has grown earnings per share at a 19% compound annual rate since 2013, while pre-tax income has increased at a 10% annual clip in that span.

"Revenue growth has been largely in line with or above [pre-tax income] growth, meaning that the company has not benefited from operating leverage," he wrote. Buybacks have contributed 400 basis points to 600 basis points a year to earnings growth, while a lower tax rate has added 200 basis points annually, Sacconaghi continued.

One way to look at the buyback program is that it's a tool that is "buying time" for Apple to grow its high-margin services business, noted Sacconaghi. He estimates that services could make up more than a third of revenue and more than half of gross profits by 2027. Still, a notable variable in Apple's earnings story remains the performance of the company's hardware business, in his view.

"The imperative going forward is for hardware to continue to grow, or atleast not detract from Services growth," Sacconaghi wrote.