What is HPQ management indirectly telling us via share buybacks?
Admittedly, I've never spent any time working in the financial departments of any Fortune 500 company, but what HPQ has done over the past 3 years, and is currently doing, doesn't seem like it makes a whole lot of sense.
In 2010, the company took out $6B in debt to repurchase $8.5B in shares. For most of FY 2010, shares were trading around $45.
In 2011, the company took out $8.3B in debt to repurchase $9.2B in shares. For most of FY 2011, shares were trading around $40.
So far in FY 2012, the company has paid down about $1B in debt and has repurchased less than $1B in shares. The 52 week high was $30/share, but shares have traded well below that price for most of the year, and currently trade below $20.
I realize that authorization of share repurchases are needed, but I think the company is still authorized to buyback a few billion dollars worth, and the company still has about $10B in gross cash.
So what is management trying to say? They don't have confidence in their ability to generate cash in the coming years? They are planning to make a big acquisition and need to hoard their cash for now? They seemed to be pretty confident in the company in 2010 and 2011, and now they are skiddish about share repurchases.
The company is trading with a 20% FCF yield right now, and only 30% of their revenue comes from their PC segment - looks cheap and relatively safe. But a little more confidence from management would likely go a long way with investors. If the company isn't purchasing shares right now, I'm not purchasing shares right now.
No position in HPQ, although 20% FCF yields from $100B companies are tough to pass on...