Telecom equipment manufacturer
) has decided to enhance its shareholders' wealth for the second
time in the last 10 days. Business enterprises generally adopt
two ways to raise their shareholders' return: (1) share buyback
program, and (2) dividend initiation or hike program.
Yesterday, the Board of Directors of Tellabs has decided to
pay a special dividend of $1 per share. The dividend is payable
on December 21, 2012, to stockholders of record as of the close
of business on December 14, 2012. This special dividend will cost
the company approximately $368 million. Earlier, on November 20,
Tellabs announced a share buyback program worth $224.6 million
(consisting of about 22.5% of the company's outstanding
Tellabs has got sufficient cash to carry out these two
programs. The company exited the third quarter of fiscal 2012
with $941.8 million of cash & marketable securities with no
debt outstanding. So, the company's plans to repurchase shares
after a gap of seven quarters along with a special dividend
payment will not only boost its share prices but will also drive
the company's earnings per share in the years to come. As a
matter of fact, in the after-market trade in NASDAQ, yesterday,
the share price of Tellabs went up 34 cents (11.53%) to
Meanwhile, despite meeting the Zacks Consensus Estimates,
Tellabs reported dismal financial results for the recently
concluded quarter, where all the segments experienced revenue
declines along with a loss in earnings. Moreover, the company
also presented a somber outlook for the next quarter. Such poor
performances were mainly attributable to increasing competition
in its core wireless backhaul solutions segment and loss of a
major client like
) from its limited customer portfolio.
Such poor showdown by Tellabs was also reflected on its share
price movement recently, where the company shares hit a 19-year
low last week. We believe that in order to regain investor's
faith as well as to maximize their wealth, the company reverts
back to share buy-back and special dividend program, which will
also drive share prices.
Nevertheless, it is yet to be seen how long the company can
restore the investors' faith by means of buying back shares and
paying dividends instead of generating profit form the business.
We maintain our long-term Neutral recommendation on Tellabs.
Currently, it has a Zacks #3 Rank, implying a short-term Hold
rating on the stock.
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