A small buyback would also not hurt. It is a matter of increasing accretive normalized earnings per share. RDN currently has 133 million share outstanding. Buying back 30 million shares over two years could do wonders for the Earnings per share and not change the liquidity of the stock that much.
Plus I really think they need to shake the bondholders out of complacency. It has to be incredibly frustrating for RDN management to see the stock price at $3.30, everyone is questioning your future, but yet your near term debt is trading at 95 cents on the dollar. The debtholders think they are covered by all the holding company cash, so they aren't budging.
Back in 2009, RDN was able to buy back debt at a really nice discount. Imagine how great it would be if they could buy back the 2013 debt at 70 cents on the dollar?
So they are kind of in a catch 22 situation - they are worth a lot more than their current market cap, but part of that is because they have all that holding company cash that gives them flexibility, but the bondholders believe that is all theirs.
A nice small buyback should balance the valuation between debt and equity holders a bit more.
I like the fact that there are 133 million shares outstanding. I would not want that number to be lower right now. Right now they are still reporting losses and the higher share count makes them lose a little less per share than before. Once they start reporting profits, I would strongly encourage them to buy back stock.
Believe me..I agree that RDN is undervalued but in this environment buying back stock would be suicide. The MI business is all hands on deck now at battle stations. Taking away your ammunition in not the correct move sir.
That's conventional wisdom, of course. I disagree with the conventional wisdom. You're assuming money spent now on a buyback has no time value. In any strategically run business, money always has time value.
And, per above, if they only want to do something to benefit shareholders, a dividend puts more money into shareholders' pockets than a buyback. Including in the long term because I can drip it and even if I don't drip it, I can put it to work in some other way.
I disagree. I am a long term shareholder companies are valued using a dividend discount model or operating cash flow. With RDN trading where it is currently at I would highly prefer a buyback. If it was at 9 bucks that is a completely different storey. Money buying back shares today can have a huge accretive action in the long run with a much higher stock price. The Return on equity would be much greater.