A wait-and-see outlook on the economy and the recent rough patch for the stock market have combined to prompt a number of publicly traded companies here to join a national trend of putting their cash into stock buybacks.
This year’s second quarter saw companies in the S&P 500 announce $109 billion worth of buyback plans. That compares with $79 billion for the same period a year earlier, and a recent historical low of $24 billion in 2009.
The biggest buyback plan among local companies lately comes from Irvine-based medical device maker Edwards Lifesciences Corp., which is included in the S&P 500. It recently authorized a $500 million repurchase plan because “our stock is not reflecting the value that it should be,” according to spokeswoman Amanda Fowler.
The plan comes with about $240 million remaining under a $500 million repurchase authorized early last year.
“This is an extension of our current program,” Fowler said. “We have a program that is open and not fully utilized. We probably won’t start this new plan until early next year.”
R&D Spending
Edwards is still putting money into research and development, and “new technology is still a huge push,” according to Fowler.
The buybacks are “one other way to return value to the shareholders,” she said.
Other repurchase plans track the recent dips in stocks.
“We think we’re prettier than the market thinks we are,” said William Kuser, director of investor relations at American Vanguard Corp.
The Newport Beach-based maker of chemicals for agricultural and other commercial uses recently announced plans buy back up to $10 million of common stocks.
Vanguard’s shares were on an upswing earlier this year before falling amid steep declines that swept the markets in August.
“So we went down to under $11 for a period of time, and now we’re between $11 and $12,” Kuser said. “We think we are more valuable than that.”
Kuser said the company has not set price targets for the repurchase plan.
“The board could choose to execute it or not” depending on how the price moves, according to Kuser.
The question is “how low is too low?” he said.
Ceradyne
Costa Mesa-based Ceradyne Inc. also announced a buyback plan recently.
“We’ve gone very well for quite a long time,” Chief Executive Joel Moskowitz said. “We’re not happy with the price of the stock.”
The recent approval allows the maker of ceramic products and other components for defense, industrial and commercial uses to buy $100 million worth of its own shares. That follows a similar program in 2008, when the company was authorized to repurchase up to $100 million of its stock.
“We did opportunistically then,” Moskowitz said. “We thought (the price) was low, we bought it. It went up, we backed off.”
The earlier repurchase plan has $7.5 million remaining.
“We have one of the best balance sheets,” Moskowitz said. “We’re doing well enough that we’re generating cash.”
The company has seen free cash flow increase this year, generating $31 million in the second quarter.
Heightened concerns about the economic recovery—which have sparked fears in some quarters about a double-dip recession in the last few months—appear to have many companies seeing few other options for investing their cash, according to Anil Puri, dean of the Mihaylo College of Business and Economics at California State University, Fullerton.
Companies won’t invest in new opportunities “until there’s a clear sign that the economy will be picking up,” he said.
The Rationale
Meanwhile, every share that’s repurchased shrinks the number outstanding, increasing value for shareholders.
“That’s the rationale,” Puri said. “I think in these circumstances it makes sense to do that.”
Santa Ana-based solid state storage drive maker STEC Inc. launched a repurchase program to buy up to $40 million worth of its shares. The plan came quickly after completion of an earlier buyback of $15 million.
STEC’s shares have likely been hit by a combination of recent turmoil in the overall market and an ongoing Securities and Exchange Commission investigation into charges of fraud and violations of reporting provisions of federal securities laws, according to the company.
Santa Ana-based Ingram Micro Inc. is approaching the second year of a three-year plan to buy up to $400 million worth of its shares. So far, the company—the biggest distributor of computers, software and other technology products in the world—has purchased about $150 million worth of shares.
No Guarantee
Stock buybacks aren’t guaranteed to yield bargains.
“Some firms are betting on buying back their shares at a low price and selling high,” said Vivek Mande, director of Cal State Fullerton’s Center for Corporate Reporting and Governance. “It does not work typically. Most of the time they can’t sell at a better value, so they lose out on that.”
And the buyback trend doesn’t apply across the board to public companies based here.
A number of them have moved aggressively on acquisitions this year. Deals range from Irvine-based disk drive maker Western Digital Corp.’s pending $4.3 billion buy of Hitachi Global Storage Technologies Ltd. to Aliso Viejo-based Microsemi Corp.’s $632 million purchase of a fellow chipmaker in Canada. Irvine-based chipmaker Broadcom Corp. recently bid $3.7 billion for fellow chipmaker NetLogic Microsystems Inc., a deal that is expected to close in the first half of next year.
