re: It's clear from that link that Dell is planing $300 MM in capital expansion projects, and my guess is continued vigorous share buy back. This seems like a very bullish scenario to me.
Why is it bullish to add capacity in a more expensive way.
DELL could easily use cash on hand and stop the share buy back.
Instead, they want to make sure that they have additional expences in the form of intrest and fees related to the Debt that will hang around for many years to come.
$300 Million share buy back / $67 = 4.48 million shares.
and issue the Debt.
Last Q they earned about 268 million / 653 shares = .41 cents
going forward,
Say they earn $300 a Q,
$300 / 653 = 46 cents, No debt and no buy back.
Now say they do the Debt, for $300 cap ex.
300 Net income - $25.5 million on the debt, (That is @ 8.5% Prime) pretty good for Bbb1 debt.
Tax advantages and what not, the number comes out to $285
$285 / 653 = 43.6 cents, but wait, we bought back stock.
$285 / 653 - 4.5 = 43.9 cents. Better, but not as good as the first one without the buyback and no debt.
As a share holder, which would you rather, 46 cents or 44 cents ?
BTW, this intrest payment will hang around for years to come, Draining excess cash flow.
Now,
If I made a mistake, Please point it out, or explain how debt is bullish.
Jim |
