Target (TGT) to Resume Share Buyback

by Paul Ausick | January 15, 2010 2:26 am

Target Corporation (TGT[1]) announced today that it was resuming a $10 billion stock buyback program that its board approved in November 2007 and suspended in November 2008. In its announcement, the company attributed the buyback to “much stronger-than-expected cash flow” and said that spending the riches on a buyback allows the company to create value for our shareholders over time.”

They must mean geologic time. Why not give shareholders something a little more immediate, like, say, a special one-time dividend that would be payable very soon.

Buying back stock typically results in a bump to the company’s share price. Fewer shares outstanding means each share is worth a bit more. That’s good for investors.

But it’s very good for company executives, whose compensation plans are often tied to a company’s share price. Special dividends, indeed dividends of any kind, provide little immediate benefit to executives because most of their investment in the company is really only stock options.

Here are a couple of other recent examples of buyback-itis. GameStop Corp. (GME[2]) announced a $300 million share buyback yesterday, and SonoSite (SONO[3]), a maker of portable ultrasound machines, on Monday revealed that it is buying back $100 million of its shares. It’s hard to believe that either of these companies can’t find a better use for their cash.

GameStop same-store sales were lousy during the holiday season, and SonoSite has preliminarily reported that fourth-quarter results fell as a result of fewer orders from military customers. GameStop needs to think about increasing competition from big players like Amazon (AMZN[4]) and Wal-Mart (WMT[5]). SonoSite needs to find new customers. Its revenues fell year-over-year. And these guys are buying back stock?

Target, though much larger than either GameStop or SonoSite, faces equally big challenges. Annual revenues are down nearly 3% from 2008, and the company expects January sales to be flat or just barely better than a year ago.

Couldn’t the company use the $5 billion or so left in its buyback fund for something better? If not, they could at least have given shareholders some cash now.

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Endnotes:

  1. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  2. GME: http://studio-5.financialcontent.com/investplace/quote?Symbol=GME
  3. SONO: http://studio-5.financialcontent.com/investplace/quote?Symbol=SONO
  4. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  5. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  6. Retail Sales Fall for December: https://investorplace.com/experts/paul_ausick/articles/retail-sales-fall-for-december-and-2009.html
  7. A Top-Rated Macro Theme Stock for 2010: https://investorplace.com/experts/richard_band/articles/top-rated-macro-theme-stocks-for-2010.html
  8. Avatar & Sarah Palin – A Match Made in Heaven?: https://investorplace.com/experts/paul_ausick/articles/news-corp-nws-counting-on-avatar-sarah-palin.html
  9. Sign up and get started today: https://investorplace.com/order/?sid=UF3100

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