Companies that have excess cash on their balance sheets have a number of things they can do with that money. It could be spent on research and development, used for a promotional activity or even saved for a rainy day. There is another option for spending that cash, however, and that's for the company to buy back its own stock
When a company engages in a little repurchasing, the investment community should pay close attention. An active share repurchase program tells investors that management believes the shares are undervalued. Why else would the company spend millions, or sometimes billions, buying back stock? Managers know the company better than anyone else, and so when investors spot a repurchase plan they should seriously examine the company's prospects and consider investing some of their own excess cash into the stock. (To learn more, read A Breakdown Of Stock Buybacks.)
All Aboard The Buyback Express
Here's a shortlist of companies that have recently announced share repurchase programs, or expanded their existing programs, and thus could end up producing sizable returns.
Recent Repurchase Announcements
|
Company
|
Date Program Announced
|
Maximum Amount Allowed
|
|
ADC Telecom (Nasdaq:ADCT)
|
Aug. 13
|
$150 million
|
|
Anadarko Petroleum (NYSE:APC)
|
Aug. 25
|
$5 billion
|
|
BJ’s Wholesale (NYSE:BJ)
|
Aug. 20
|
$200 million
|
|
Cadence Design Systems (Nasdaq:CDNS)
|
Aug. 15
|
$500 million
|
|
Coach
(NYSE:COH)
|
Aug. 25
|
$1 billion
|
Coach Has in in the Bag
I have to admit that I'm a bit baffled with the success of high-priced handbag maker Coach. Don't get me wrong, those bags are pretty attractive, but how do they fetch such lofty prices? I suppose I'm hardly the company's target demographic, and I'm not one to argue with success. On August 25, the company approved a $1 billion buyback program. Very simply, I think this plan tells investors that there could be good value to be had.
Coach is coming off a solid fourth quarter. In the period ended June 28, it earned approximately $213.5 million, or 62 cents per share. That was a hefty improvement over the roughly $160.6 million, or 42 cents per share, it earned in the comparable period a year ago. Once you exclude one-time items, net income totaled 50 cents per share. This matched analyst and company expectations. (Find out how these forward looking numbers can affect investors' bottom line in Great Expectations: Forecasting Sales Growth.)
For fiscal 2009, the company expects earnings per share of at least $2.25 according to the earnings release. This is an increase of about 10% from last year, excluding the one-time items recorded in the fourth quarter of fiscal 2008. Analysts expect $2.29 per share in the current year and $2.59 per share next year according to data from Yahoo Finance.
Bottom Line
The stock market is full of examples of companies that bought up boat loads of their own stock and then watched the shares rise steadily, but remember there are no guarantees. It's important to do your own research and decide for yourself if the shares are truly undervalued.
What do you think of these companies? Are in making the right move in buying shares of their own stock? Should investors follow suit? Join the FREE Stock Picking Community to share your thoughts and see what other investors are saying.
