Saw this news on linkedin, how will it affect share price? Cisco to bring back $67B after tax law Cisco announced that it will bring $67 billion back to the US, reports The Wall Street Journal. The tech giant will bring home its foreign cash holdings this quarter, after benefitting from the new tax law introduced by the Trump administration. Cisco says it plans to spend much of the newly repatriated cash on share buybacks and dividends. Cisco on Wednesday reported better-than-expected earnings for its second quarter, finally reversing a two-year revenue decline, said Business Insider. Similarly, Apple announced last month that it would bring back most of its $252.3 billion it keeps overseas back to the US, boosting spending and creating more than 20,000 jobs, per the Journal.
First, take everything Apple says with a grain of salt because they are masters of double-speak. Apple didn't say that it would bring back $252 billion; what it said is that it would pay the tax owed on the $252 billion. Whether it brings it back is another story, but after the tax is paid, it is free to do so. Similarly Apple didn't say it would creat 20,000 jobs. It said that due to its actions 20,000 jobs would be created. Apple counts everyone from the employees of suppliers to the FedEx guy that delivers your new iPhone as a job that it created. Second, yes companies that truly buy back stock tend to perform better. However, many companies that say they are buying back stock end up with more stock issued than before the buyback. Why? Because they are really buying back stock to issue to employees as part of compensation, not to retire the shares. But to compare the performance of real buyback companies compare the Buyback ETF, PKW, to SPY: http://goo.gl/acz8wM
Buybacks with excess cash are obviously good for the stock price, assuming total earnings and dividends stay the same and therefore the earnings per share go up. Also, they would need to go the the actual exchanges to purchase shares from investors... creating more short term demand. However, if it's done in a scenario where the company might have some cash but actually needs it in the near future for whatever... then it's basically a stupid move since they might need to go to the capital markets again very soon after they did the buybacks... that's basically a sign of mis-management....
Hmm... never really thought of it that way. But employees usually have a multi-year lockup so in the short/medium term it's still positive. And, arguably.. when employees have a decent stake in the company, they would do better... so that's positive as well.
Reflecting on JackRab's comments -- the ol' Business School line was that share buy-backs were what companies with no future did -- they looked at their balance sheet, concluded that (the promise of) R&D would not pay the shareholder as well as cutting down the number of shares over which earnings would be divided. [Same conclusion for vertical or horizontal M&A.] Now, AAPL is huge, and has a huge R&D *machine* -- I'm sure that they are well-funded in that regard. And as well, I'm sure that if AAPL wanted some strategically-neighboring company, they would just go and buy it. So, I (coming from ignorance of details) can see AAPL doing extensive buy-backs. But CSCO??? Again -- *lots* of ignorance on my part, but the last time I looked, they impressed me with their modesty. They *survived*/thrived from 20 years ago, but they see no opportunity for R&D or M&A growth?? They think that the bottom-line question of, "Where will the shareholders' capital do the shareholders best?? Here, via growth, or back with the shareholders, via a dividend, or longer-term, via a buyback........" CSCO concluded that a buyback was the way to go???? That surprises me. I'm ignorant[!], but that surprises me.
Yes, buyback affects share prices. In fact... years ago it was considered "price manipulation".... and was an illegal, criminal offense.
Buy backs converted to Treasury stock reduce Total Capitalization of the firm. Good for dividends and payout ratio if cash flow is good. Not good if Mgmt is coasting and getting nothing right. Lots to consider. Need the full picture.