A proposed $200 million stock repurchase will not harming the Company liquidity based on positive cash flow from operation.
Shareholder expects that a proposed $200 million stock repurchase will increase the price per share of SANM common stock, which in turn would, among other things, broaden the class of investors who invest in our stock, help increase analyst and broker interest in our stock and reduce the possibility that our stock trades below $1.00 per share for an extended period of time, which could cause our stock to be delisted from the Nasdaq Global Select Market.
Anyone agree to this suggestion? Very simple. Let's increase shareholder value. I'll vote for that!
I asked SANM IR about a stock repurchase. SANM cannnot repurchase stock because they of debt covenants in their loans which prevent it and they are not in a position to pay off this debt or renegotiate. So this is pie in the sky.
At June 28, 2008, an aggregate of 64.2 million shares were authorized for future issuance under SANM stock plans, which includes stock options, employee stock purchase plan and restricted stock units and awards. A total of 4.6 million shares of common stock were available for grant under SANM stock plans as of June 28, 2008.
If SANM don't buy them back now while the stock price is low, you are going to end up losing more in the future. Put those 64.2 million shares in your equation.
As for interest rate, it varies but all are under 9%. The answer is in their 10Q filing.
They also have a $500 mil line of credit (untapped).
BTW, nice run today. Enjoy your weekend.
What is their cost of capital? If they paid off $200 million of 9% debt they would save $18 million a year in interest payments which goes directly to the bottom line resulting in a $0.036 increase in GAAP EPS.
What you forgot to mention was:
GAAP NET LOSS of .5 million for second Q 2008.
2007 Q3 revenue was $86 million coupled with a GAAP Net 4.1 million.
In any case, enough said.
From SIMG press release.
Revenue for the second quarter of 2008 was $ 70.1 million, compared to $ 67.1 million for the first quarter of 2008 and $ 79.8 million for the second quarter of 2007.
GAAP net loss for the second quarter of 2008 was $0.5 million, or $0.01 per diluted share, compared to a GAAP net loss of $0.6 million, or $0.01 per diluted share, for the first quarter of 2008 and GAAP net income of $4.4 million, or $0.05 per diluted share, for the second quarter of 2007.
Non-GAAP net income for the second quarter of 2008 was $ 5.0 million, or $0. 07 per diluted share, compared to $ 3.4 million, or $0. 04 per diluted share, for the first quarter of 200 8 and $ 8.5 million, or $0. 10 per diluted share, for the second quarter of 2007. Non-GAAP net income excludes stock-based compensation expense and amortization of intangible assets.
If SANM can't even invest in their own stock, why would anyone else. They have enough liquidity from FCF to authorize a $200 million repurchase program for the next two years and pay down their debt.
Long term, their value will increase significantly more than just pay down debt.
Buying stock is nog going to imrove financial position of the company, on the contrary it's usually a financial engineering gimmick to temporarily (a couple of quarters, at the most) juice up earnings, but leaves most companies financially vulnerable, especially if they have significant debt. Analysts' "expectactions" adjust to new shares outstanding count, and the "juice up" earnings effect is gone, and starts working against the stock. Have seen that many a times, when company doesn't know what to do to move the stock price up and can find no better way to operationally invest the money. It's usually a waste of money and sign of bad financial management.
The most simple and best way to really improve financial position of SANM and at the same time to raise the earnings is to spend (at least part of) positive cash flow on paying down and reducing the debt. It will reduce interest expense and debt rating of SANM, and thus increase cash available for operations improvement and/or small acquisition, and will make SANM even more attractive takeover target without jeopardizing its stronger financial structure.
In other words, reducing debt and interest expence is a win-win proposition, spending cash on buying and reducing trading liquidity of the stock is a lose-lose proposition.
Speaking of reducing liquidity, at around $2 per share, I would not go with the reverse split. It's an expense, and allows for more shorting (fewer can short under $5) and does reduce liquidity for trading and doesn't really do anything (beneficiently or adversely) financially for the company. At around $1 it makes sense because of exchange listing rules and corresponding shorting activity and negative psychological factors (with potential and current customers), but having escaped that, it's unnecessary expense and distraction without any real gain. FLEX has more than 50% higher shares count, CLS and JBL have almost half the shares of SANM - all, except JBL are in single digits price - it's not such a big deal.
Important thing now is to use free cash flow to improve company's permanent financials and earnings (by paying off debt) and operations, which they seem to be doing finally by selling off problem parts of business and increasing margins.
Industry is not out of the woods yet (as evidenced by a recent stumble by CLS), and it's important to put company on more solid footing instead of weakening it and/or playing with the number and prices of shares without any real benefits.
BTW, IMO, the stumble by CLS and continued financial and operational / margins improvements may put "new and improved" SANM as a more likely takeover target now in a range of $5 - $8 per share, depending on pace of improvements and size of accumulated NOLs. Again, just my opinion, but I think that is why we see solid upward move in stock price since last Q results and confidence in CC.
"Buying stock is not going to improve financial position of the company"
I beg to differ and disagree. For example, SIMG recently completed a $100 million stock repurchase where the average purchase price was around mid $5. Currently, the stock is trading above 7. As you may know, if SIMG issues new ESOP options to employees, the ESOPs price will be at current price minus 15%. Therefore, SIMG just made a positive spread. Going forward, if the stock price continue to increase, wouldn't the company benefit since they purchased their own stock at a much lower price while lowering float by 10%?
Furthermore, Stock repurchase program sends a message that management has faith in their turnaround strategy and their ability to execute and improve the company's performance as seen in their latest key performance metric report.
I agree that they should continue to pay down debt but most of their debt is not due until 2013, 2014 and 2016.
Last quarter, they did paid down $120 mil of debt that was due in 2010. Since, LT debt is about $1.5 billion in comparison with revenue of over $8 billion and growing, I don't believe they are heavily leverage. Therefore, a stock repurchase program should not affect their liquidity.
I strongly agree that we should NOT go with a reverse split based on your argument. Total waste of time, effort and equally important, money.
I strongly agree that it is important to improve company's permanent financial, earnings and operations performance while increasing margin. Therefore, a stock repurchase program couple with debt reduction is a good strategy going forward.
BTW, it is refreshing to hear from someone with some intelligence.
bottom line, this stock is 2low4me.
Assuming a buyback price of $2/share $200 million buys 100 million shares which, all other things being equal, would raise the share price by $0.50 to $2.50.
The smallest reverse split ratio would, again all things being equal, bring the share price to $6.00.
What the board should do, if it wants to get the share price over $5.00 is do both the buyback and a reverse split.