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Strategies & Market Trends : Investing for the January Effect 2000 -- Ignore unavailable to you. Want to Upgrade?

To: GBT who wrote (60)	12/28/1999 9:59:00 PM
From: Q.	Read Replies (1) \| Respond to of 109

re. LII and "they are buying up to 5 million shares back, 2 million before first quarter ends." Well, I saw the announcement about 5 million. That was several months ago, wasn't it? I overlooked the info about 2 million in Q1. Where did you find that? A lot of companies that announce buybacks ultimately never do it, or never do more than a tiny fraction of the amount they announced. When I looked at the balance sheet, I figure that a buy-back of this size is feasible, but I wonder whether they will go through with it. They have $40 M cash, so they can't pay cash for 5 M shares at $10+. They would have to leverage up to do it. And they are a cyclical company, I should think. This is the most critical factor that I thought of for discouraging them from doing the buyback. Cyclical companies need cash. I looked at a couple of other factors as well: They have $330 M of working capital (current assets minus current liabilities), so buying back 5 million shares at $10 would not be a devastating hit to the liquidity. However, if the directors are worried about what will happen in the next downcycle for capital goods sales, then maybe they would be well advised not to do the buyback. I think if I were in their shoes, I would want to play it safe. Another factor is what the buyback would do to shareholders equity and net tangible assets (NTA). The latter is $260 M, once you subtract out the huge amount of goodwill from the shareholders equity. The buyback will reduce book value and NTA by the amount of cash spent. Reducing the NTA from $260 M to $210 M is not that extreme, but I could imagine directors saying no, don't do it, build the company instead. ===== edit: I just found this in the latest 424B3 prospectus: "A majority of Lennox's sales of residential heating and air conditioning products in the United States and Canada are to the repair and replacement market, which is less cyclical than the new construction market." I still suspect that they are fairly cyclical, though.