Analysts Look for More IBM Stock Buybacks : Deals Seen as Best Use for Surging Cash Flow
International Business Machines’ latest plans for a stock buyback may signal that the computer maker plans regular repurchases as a means of putting its surging cash flow to best advantage, analysts say.
The Armonk, N.Y.-based firm this week announced plans for a 4-million-share buyback that will be its third in the past 10 months, and represents an expenditure of about $570 million at the stock’s current price.
While the three announced purchase programs involve only 3% of the 607 million shares of IBM outstanding, “they suggest the company may plan a regular program of small- to medium-size purchases over the next couple of years,” said Stephen Dube, analyst with Shearson Lehman Bros. in New York.
Dube has estimated that IBM’s cash flow will average about $3 billion a year in 1987 and 1988.
“These kinds of buybacks won’t put a dent in that,” Dube said, adding that it would, however, help bolster the company’s stock price. “They could increase the buybacks, but this is a conservatively financed company.”
Strong Position
IBM has had a strong cash position recently, finishing 1986 with about $7.26 billion in cash and marketable securities.
“They’ve also spent a lot on plant and equipment in the last couple of years, so it’s not like they need more capacity,” said George D. Elling, analyst with Oppenheimer & Co. in New York. “They’ve decided this is the best use they can put the cash to right now.”
Elling noted that some companies, including NCR, have recently made buybacks a regular practice.
IBM’s stock closed down 25 cents a share, at $143.125, on Tuesday, following the buyback announcement. On Wednesday, IBM shares fell another $1.25 to $141.75 in composite New York Stock Exchange trading.
Elling noted that the shares have already gained sharply in recent weeks, after hitting a 52-week low of $115.75 in mid-January on signs that demand for the company’s products would not soon increase. More recently, some analysts have taken the view that demand may be stronger than had been expected.
These more optimistic attitudes have lifted the stock “enough that it’s not so surprising that this news didn’t move them up,” Elling said.
