In order to maintain the trend of returning wealth to its
shareholders, the board of directors of Chinese online travel
Ctrip.com International Ltd.
) recently approved a new share repurchase program. The company
can now buy back additional American depositary shares (ADS) for
a value of up to $600.0 million. The increase reflects the
company's confidence in its fundamentals and its strong liquidity
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The company intends to use its existing cash balance, which
includes cash generated from operations and the cash received
from convertible bonds that were issued in 2012 and 2013, to
repurchase shares. In Sep 2012 and Oct 2013, the company
completed senior notes offerings worth $180.0 million due 2017
and $800.0 million due 2018, respectively.
Since 2008, the company has been returning wealth to its
shareholders with the help of its share repurchase program. The
company last approved a share repurchase program worth $300.0
million in Jun 2012. Though it did not repurchase any shares
during 2013, as of Dec 31, 2013, it repurchased 17.5 million ADS
worth approximately $298.5 million from the open market.
The share buyback program will help the company reduce
outstanding share count, thereby increasing earnings per share
and return on equity. Meanwhile, this strategy to return wealth
to shareholders would keep the stock attractive as it
demonstrates the company's growth potential and stable liquidity
Given the company's strong balance sheet, we believe that the
decision to make additional share repurchases is justified. As of
Dec 31, 2013, cash and cash equivalents were $1.18 billion, up
from $0.57 billion as of Dec 31, 2012.
This Zacks Rank #3 (Hold) company posted strong fourth quarter
results in Feb 2014 with earnings and revenue beating the Zacks
Consensus Estimate owing to its leisure travel products, better
pricing and developed mobile technology.
However, huge investments made by the company pose a concern. In
2013, the company purchased eHi Car Services, a privately-held
car rental company; Yongche, a car rental business and travel
search engine Kuxun. It also invested $100.0 million to buy
ToursForFun, a rival Chinese-language travel site.
Besides investing in an e-commerce tourism ticket platform, the
company is also spending on promoting its mobile booking service
and mobile apps. Though these investments are expected to benefit
the company in the long run, these could be an overhang on
earnings and margins in the near term.
Some better-ranked stocks in the Internet services industry
Vipshop Holdings Limited
Asure Software, Inc.
E-Commerce China Dangdang Inc.
). While Vipshop Holdings sports a Zacks Rank #1 (Strong
Buy), Asure Software and E-Commerce China hold a Zacks Rank #2