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Treasury Stock: Measuring the Return on Investment

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May 10, 2012 – Comments (0) | RELATED TICKERS: JPM , GE , GS

Treasury Stock: Measuring the Return on Investment 

Shares repurchases should be considered an investment. And measured like an investment.  The more recent balance sheet of seven issues was reviewed.

It should be noted that the cost of treasury stock might be understated, if a firm has retired treasury shares.  The sec filings (10k & 10-q) were not reviewed for the retirement of shares. 

Of the seven issues reviewed two showed a gain with five showing a loss.

 Walgreen (WAG) 

$5,826                  Treasury Stock Cost (millions)

$35.83                  Average Cost

$34.09                  May 8th Close

 4.9%                  Loss

$6.75                  Cost of Treasury Stock per Outstanding Share (2/29/2012)

                           863 millions shares outstanding

  The firm could have eliminated its $2,281 million of long-term debt. 

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IBM (IBM) 

$114,020                  Treasury Stock Cost (millions)

$110.20                  Average Cost

$201.48                   May 8th Close

82.8%                  Gain

$98.85                  Cost of Treasury Stock per Outstanding Share (3/31/2012)

                         1,153 million shares outstanding

  The firm could have eliminated its $25,760 million of long-term debt. 

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Staples (SPLS) 

$4,414                  Treasury Stock Cost (millions)

$19.50                  Average Cost

$15.00                  May 8th Close

23.1%                  Loss

$ 6.36                  Cost of Treasury Stock per Outstanding Share (2/27/2012)

                           694 million shares outstanding

  The firm could have eliminated its $1,599 million of long-term debt. 

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Tellabs (TLAB) 

$1,229                  Treasury Stock Cost (millions)

$8.73                  Average Cost

$3.78                  May 8th Close

56.7%                  Loss

$3.36                  Cost of Treasury Stock per Outstanding Share (4/27/2012)

                          366 million shares outstanding

  The firm has no long-term debt. 

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GE (GE) 

$31,315                  Treasury Stock Cost (millions)

$27.94                  Average Cost

$19.25                  May 8th Close

31.1%                  Loss

$2.96                  Cost of Treasury Stock per Outstanding Share (3/31/2012)

                           10,587 million shares outstanding

The firm could have reduced its 233,487 million of long-term by 13%.

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Goldman Sachs (GS) 

$42,281                  Treasury Stock Cost (millions)

$136.35                  Average Cost

$109.37                  May 8th Close

19.8%                  Loss

$85.43                  Cost of Treasury Stock per Outstanding Share (2/17/2012)

                             495 million shares outstanding

The firm could have reduced its $173,545 million in long-term debt by 24% 

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JPMorgan (JPM) 

$13,155               Treasury Stock Cost (millions)

$39.60                 Average Cost

$41.38                 May 8th Close

4.5%                  Gain

$3.45                  Cost of Treasury Stock per Outstanding Share (1/31/2012)

                           3,817 million shares outstanding

 The firm could have reduced its $256,775 million of long-term debt by 5%. 

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The cost of treasury stock per outstanding share is a rough calculation showing how much per share was provided to stock sellers in lieu of paying it as a cash dividend to the owners of the stock. 

 Why Investors should care: 

It is shareholder money. The question for shareholders is, would they rather have the cash and make the reinvestment decision. Or provide the cash to sellers of the stock?

Generally sellers place downward pressure on the share prices with the trade done at the bid.  While buyers of stock generally exert upward pressure on the share prices with the trade done at the offer. 

Treasury shares may also be viewed as overhead supply that may limit upside appreciation.

Disclosure:

Long Walgreen and Tellabs.  

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