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Technology Stocks : Novellus
NVLS 2.400+2.1%Jul 24 5:00 PM EST
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To: Cary Salsberg who wrote (3680)2/15/2008 12:45:05 PM
From: brushwud   of 3813
 
if industry cycles are very muted, companies are cash flow positive through the cycle, stock prices don't reflect changed conditions, then the use of cash to SIGNIFICANTLY reduce share count benefits shareholders. EPS increases and dividends may be raised more easily because they are paid on fewer shares.

You're expressing a belief for which there is no evidence. Share repurchases reduce both income (the interest earned on the cash used for the repurchase) and the number of shares, so they represent a partial liquidation of the company. That's the opposite of an IPO: IPOs are bullish, repurchases are bearish.

A share repurchase at the bottom of the market would be a good thing, but if the CFO is able to time the stock market that well he should be working for an investment bank. Almost all of the share repurchases we see are secular; they take place throughout the year at whatever the price happens to be. Both Intel and Novellus actually bought back shares in 2000 when the interest they were getting on cash was > the reciprocal of their P/E ratio, which decreased EPS immediately. Usually repurchases take place at lower P/Es, but are still an indication of slowing growth.

Feel free to nominate a stock doing share repurchases which is beating the S&P 500.
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