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IBM board authorizes $15 billion share buyback
2008-02-26
IBM (IBM.N) said on Tuesday its board authorized a $15 billion share buyback program that could boost 2008 earnings by up to 5 cents a share, sending its stock up 4.2 percent. News of the planned repurchase, equivalent to about 10 percent of International Business Machines Corp's market capitalization, pushed the U.S. stock market higher. "IBM is showing its confidence it can still generate a lot of cash in a difficult environment," said American Technology Research analyst Shaw Wu. "We are in a bear market, we are literally on the brink of recession -- we actually might be in one already." The new repurchase authorization comes after IBM reported strong fourth-quarter results on January 17 and gave a 2008 outlook that topped Wall Street expectations, saying growth abroad would make up for the weaker U.S. economy. Shares of the world's largest computer services company have risen 13 percent since the quarterly results, which underscored investor expectations that overseas services and software sales would help IBM through difficult times. IBM said it now expects full-year earnings per share of at least $8.25, or 16 percent year-on-year growth, as a result of the buyback. In January, IBM had forecast 2008 earnings per share at $8.20 to $8.30. The average Wall Street forecast was $8.22 per share, according to Reuters Estimates. Wu said IBM is a leader in a defensive market, noting that the company did not boost its revenue outlook despite introducing a new update to its powerful mainframe computer earlier on Tuesday. IBM hopes the more energy-efficient machine, called System z10, will compete with high-end computers from rivals such as Hewlett-Packard Co (HPQ.N) and Sun Microsystems Inc (JAVA.O). "I think they didn't want people to raise their revenues outlook," Wu said. NO MORE ADDITIONS IBM said it expects to spend up to $12 billion on stock repurchases in 2008, compared with $18.8 billion in 2007. It said it may buy shares in the open market or in private deals, and expects to use cash from operations for the buybacks. The new $15 billion authorization adds to about $400 million remaining from a prior buyback authorization, IBM said, adding that it did not expect to request board approval for more funds for buybacks in the next 12 months. IBM bought $15.7 billion in stock in the second quarter of 2007, which was the largest buyback ever according to Howard Silverblatt, a senior equity analyst at Standard & Poor's who tracks repurchases. The second-largest was Home Depot Inc's (HD.N) $10.7 billion repurchase in the third quarter. While Silverblatt noted that IBM's latest announcement was an intention to repurchase shares and not an actual buy, he said that in the past year, most companies that made similar statements followed through with purchases. "For 2008, we expect buybacks to remain active for the non-financial issues," he said. "They still have excess cash of $600 billion that equates to 65 weeks of net income, investors still favor them, (earnings per share) are increased the quarter (shares) are purchased, and ... it will be a busy year for option exercising." Shares of IBM were up 4.2 percent to $114.70 in afternoon trading on the New York Stock Exchange. The Dow Jones industrial average (.DJI) was up 0.86 percent, or about 108 points, while the S&P information technology index (.GSPT) was 1.19 percent higher. Shares of HP rose 2.3 percent to $49.23. HP Chief Executive Mark Hurd told an investor conference on Tuesday that the computer and printer maker "feels good" about its earnings forecast, but declined to raise it.
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