Dear Friends who have a knack for Financial Engineering,
Seeing that Skyworks the business appears to be in perfectly lovely shape while the stock price goes kablooey, and seeing that they pay a dividend, which is nice but not entirely earth shattering, would it not make sense for Skyworks to get even more aggressive with their buying back of shares at these prices? Monkey spies that they bought back 1,258,795 shares in the last quarter at an average of 88.89. Implication: 88.89 appears like a bargain to these guys who know the company inside and out. So.
Would cutting the dividend and going bananas by buying back shares hand over tail at these prices (currently flirting coyly with $60/share) which is about 31% cheaper (!!!) than last quarter’s average purchases make financial engineering sense?
Monkey also just spied this in the annual report: "On November 10, 2015, the Board of Directors approved a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $400.0 million of its common stock from time to time on the open market "
Is it wrong for Monkey to hope and pray that from “time to time” right now means like, as much as possible without stop? And is 400 million too modest an amount? Let’s see: they have about 1,043,000,000 (bananas)- 239,000,000 (rotten bananas) on the balance sheet, so 804 million total 'naners. More room to get aggressive in special times like these, no? Does this kind of thinking even make sense at this moment, what with the Qualcomm announcement of impending competition getting more grizzly-bear-esque?
It’ll be telling to see how the the big Brass talk about this question on the upcoming conference call, but what are our best guesses of what they’ll tell us?
IIRC, they had $300M left-over from a prior authorization, plus the addition of $400M. At today’s price, that would buy back 6% of the business.
I myself would prefer they not take on debt to buy back shares (if I want to leverage, I’d prefer to make that decision on my own). On the other hand, they will have a boat load of free cash coming in this year, and I hope that all goes to share repurchases, assuming the shares don’t double in that time frame.
It’ll be telling to see how the the big Brass talk about this question on the upcoming conference call, but what are our best guesses of what they’ll tell us?
They actually talked about it on the last call:
We like the 40% return to the shareholders, so we’ll continue to look at annual dividend increases. That’s a smart play for us. And then we’ll do opportunistic share buyback. So that’s the right formula, because obviously we could take that number up, but we think the best long-term value is to continue to focus on how we’re going to grow the top line of the business. So that’s the balance that we’re trying to strike.
Granted, the share price is now 20% lower and the PMC-Sierra acquisition fell through, so things are a little different today than they were. It wouldn’t surprise me if the question is raised again in a couple of weeks on the next call.
Makes sense Monkey, but companies hate cutting dividends. The market perception is that it’s a sign of trouble and often there’s a further tailspin in share price. Then you can get the frivolous shareholder lawsuits just because.
As a knowledgeable shareholder, you probably wouldn’t mind this at all. Buying back more shares at cheaper prices is a long term benefit. Of course, there can be amendments to employee option plans that allow more options to be issued. They do this, naturally, because of the lower stock price.
Generally, I agree with you, as long management isn’t ramping up the options program and offsetting the benefit of the buyback.
Monkey I love you posts amusing and thoughtful. I think many companies will be doing buy backs but rule 10b-18 imposes a period near earning where that cannot happen. I have tried to read the Federal law but frankly I could not sort it out - I have heard others say they cannot buy back stock 4-5 weeks before earnings. To avoid the appearance of trying to support the stock, in an unwarranted way.
That may explain the timing of this little episode.
I could not sort it out - I have heard others say they cannot buy back stock 4-5 weeks before earnings. To avoid the appearance of trying to support the stock, in an unwarranted way.
If this is true then companies may aggressively buy after earnings…