For Immediate Release
Chicago, IL - January 25, 2012 - Today, Zacks Investment Ideas
feature highlights Features:
Bed Bath & Beyond
(
BBBY
),
Insperity
(
NSP
) and
Accenture plc
(
ACN
).
3 Strong Companies Investing in Themselves
It's no secret that corporations are sitting on huge piles of
cash these days. In fact, by the latest count non-financial US
companies have over $2 trillion in cash and other liquid assets on
their books.
It's understandable that companies are still a little gun-shy in
deploying that cash after the Great Recession. But with money
market funds and Treasury bills paying paltry returns for the
foreseeable future, businesses need to find other places to put all
that dough to work.
Ideally, a company should use its capital to maximize long-term
value for their shareholders. But unfortunately some managers
understand this better than others. Many corporate executives are
more concerned about empire-building than producing high returns on
capital and often make reckless decisions with shareholders'
money.
Decisions, Decisions
There are plenty of uses for a company's excess cash to try and
generate strong returns for shareholders. They could plow it back
into the business to fund growth, acquire other companies, or
distribute it to shareholders through dividends.
Or the company could invest in itself; that is,
buy back shares
.
Investing in Themselves
When a company announces a stock buyback, it's a powerful signal
to investors that management is confident in the long-term outlook
of the company and that the share price is fundamentally
undervalued.
And when the company actually buys back its shares, it has a
direct benefit in that it reduces the number of shares outstanding.
This means that earnings are divided among fewer shares. In other
words, your piece of the pie just got bigger.
Use Caution
Stock buybacks don't always add value, however. If a company
commences a share repurchase and shares go down in value, clearly
it's not a good use of shareholders' cash. The money would have
been better allocated elsewhere to generate returns for
shareholders.
So make sure you look at the underlying business before
investing in a company, because all the buybacks in the world won't
save a company headed off a cliff.
3 Financially Solid Companies Buying Back Stock
I've highlighted 3 companies below who have been buying back
significant amounts of their shares outstanding. And because each
one has a strong cash balance and no long-term debt, they're
well-positioned to continue buying back stock in the future:
Bed Bath & Beyond
(
BBBY
)
Cash & Securities to Total Assets: 26%
Long-term Debt to Total Assets: 0%
Bed Bath & Beyond is a home furnishings retailer with over
1,000 stores in the United States and Canada.
Since December 2004, Bed Bath & Beyond has spent $3.7
billion buying back its stock, including $859 million through the
first 9 months of 2011. And total shares outstanding has decreased
by 13% since 2007. That's one way to grow EPS.
Insperity
(
NSP
)
Cash & Securities to Total Assets: 42%
Long-term Debt to Total Assets: 0%
Insperity is a leading Professional Employment Organization (
PEO
) that provides a wide array of Human Resource solutions to small
and mid sized firms.
The company's sizeable cash position and zero debt has allowed
it to buy back shares of its common stock. In the third quarter of
2011 alone, the company bought back over 668,000 shares of stock
(~3% of shares outstanding). As of September 30, 2011, it was
authorized to repurchase an additional 1,352,089 shares under its
share repurchase program.
Accenture plc
(
ACN
)
Cash & Securities to Total Assets: 33%
Long-term Debt to Total Assets: 0%
Accenture provides consulting and technology services to clients
around the globe. With very little fixed assets and capital
expenditure requirements, the company is able to return a
substantial portion of its cash flow to shareholders through stock
buybacks and dividends.
On top of paying a dividend that yields 2.4%, the company has
been aggressively buying back its shares outstanding. From fiscal
2007 through fiscal 2011, the company generated $13.6 billion in
free cash flow. It spent a whopping $12.5 billion of that buying
back its stock.
And in its latest 10-Q, the company stated that it "intend[s] to
continue to use a significant portion of cash generated from
operations for share repurchases during the remainder of fiscal
2012."
The Bottom Line
With the economy improving and cash representing the highest
percentage of total assets since 1959, it's time companies start
putting that money to good use to generate decent returns for
shareholders. One way is to invest in itself and buy back its
shares.
That is, of course, if the company is worth investing in.
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ACCENTURE PLC (
ACN
): Free Stock Analysis Report
BED BATH&BEYOND (
BBBY
): Free Stock Analysis Report
INSPERITY INC (
NSP
): Free Stock Analysis Report
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