Share buy back is to limit dilution and maintain eps. The Company is effectively turning equity based compensation (options, RSUs, etc.) into a cash expense rather.
First off, this is a very much loved industry and there is more passion for guns than there is against them. Second, debt is risky should the company go into default.... Common stockholders are the last to get paid in bankruptcy. If I need to explain why an investor would consider a dividend to be favorable.... then I concur with your initial admission.
If you oversaw and managed the operations of a Company that is set to make over $100 million in pre-tax income this year wouldn't you want to get paid? The stock based compensation all employees, directors, consultants, executives, etc. receive is expensed through the Company's P&L (go read up on ASC-718). There is clear visibility for shareholders into how much they are making and I see no moral issue here.
additionally, Stock based compensation is performance based.. If management does a good job then the stock price should,in theory, go up, which ultimatley results in higher gains for them on their options, RSUs, etc. I'd rather see large option payouts than frivolous cash compensation payments to an underperforming management. If you purchased this stock a little over a year ago you have nearly doubled your money.... I vote to grant more options to this stellar group of management. See ya at $15/ share.
The point of his statement was clear to me.... the Freedom Group isn't worth the $600M+ debt that RGR would have to assume if they were to acquire them. RGR generated $87M+ in cash from operations in 2012 with zero debt vs. Freedom's $11.2M. Our Company is significantly different than the Freedom group.
I'd support RGR's acquisition of Freedom's rifle manufacturing facility in CT (currently idle per the 2012 10K ) if a good deal could be made (think REO foreclosure prices). I'd also support their acquisition of a more risky modern sporting rifle focused brand such as DPMS or Bushmaster. Perhaps buy the intellectual property, migrate it offshore and shift profits to a low (or zero) tax rate jurisdiction and reducing the Company's ETR. Acquisition of such a brand would add some political risk, but the pay off may be worth it and would allow the Company to immediately capitalize on the current demand for modern sporting rifles. They may also want to consider the purchase of ammunition manufacturing facilities/brands from Freedom or Olin. This would hedge the Company against a "back door" attempt by the Government to curb gun ownership (I.e DHS purchasing up all available ammo so civilians have no access) as RGR would be able to control who it supplies ammo to and it would also provide a new revenue stream along with slight diversification and more tax planning opportunities.
Having said all of that, I'd still prefer to see all potential buyers of Freedom Group come together on principal to boycott Cerebus and not purchase any of their assets. Screw them for bowing to the political pressures of the anti-American left. Force Cerebus to play their hand and either stand-up to the anti gunners and continue to operate their bundle of firearm Companies, or be forced into default. Once Freedom has been cleansed of its debt in bankruptcy, someone could step in and make a smart acquisition.
Mr. Fifer & Mr. Debney- pls contact me if you'd like to hear more :)
100,000 options is not material to the Company and represents less than $1M in value assuming he exercised when the stock was trading at or below $10 per share. The options also had some value upon grant and therefore the Company took a P&L charge as the options were vesting. If the Company gets too out of hand with executive compensation the bottom will suffer.
Regarding the Director that sold over $7.5M in proceeds from sale of shares.... how do you know what his exercise price of the options where? The full value of the proceeds would not be compensation unless his exercise price was $0. If that is the case, then he would have likely been a founding director and $7.5M of option compensation over 10+ years is not too out of line for a founder.
Agreed. Assuming SWHC hits their Q4 forecast EPS of $.41/share (which is likely after seeing how RGR performed this quarter), the Company will have full year EPS of $1.19 for the year ended 4/30/13. At $8.84 per share... the Company is trading at less than 7.5x multiple. I wouldn't want to initiate a short position at these levels!
I'd rather see SWHC pay off and/or refinance existing debt. Once that is done, they should worry about returning $$ to shareholders.
RGR's dividend is based on a percentage of net income (they pay out 40% of income as dividends quarterly). The Company returns more cash to shareholders as they become more profitable... it has nothing to do with their intention to make acquisitions.
Backlog numbers are impressive and showed excellent grown when compared to Q1 2012. This is even after the Company limited orders : "During the first quarter of 2013, the Company limited the incoming orders from the independent distributors to mitigate the growth of the backlog".
Backlog in units is up over 81% year over year
Sales price per unit of the backlog is also up over 13% resulting in backlog growth (in dollars) up nearly 98% to $602 million. This backlog should keep the Company busy and printing cash for quite some time.
Hope you are right... I am long both RGR and SWHC. Unfortunately, these stocks have sold off after reporting solid financial results the last few quarters. Not going to fight the trend.
I've been long since early March ($5.25 per share).... it's been a good 13 months for me. Sure, I could have sold up near $11/share, but then I'd have to pay taxes at ordinary rates. Instead, I'll sell at $15 and pay my tax at the LTCG rate. The gun bill in the senate doesn't have teeth, and if anything, the discussion of it will only drive more demand. Wouldn't want to be short this one once the market wakes up to this fact. The real shorter term risk is the 2014 elections.... if the Libtards take the house and senate.... then gameover... gun control coming and this puppy tanks. Until then, I am comfortable with my bet on the long side.
Your analysis is not very useful. You have failed to consider that RGR is sitting on 4.229M shares of treasury stock. Assuming they could sell those shares on the market at a conservative $40.8 per share (the equivalent share price based on current EPS ratio @$50) they would generate $175M of cash and stock holders equity would become $270.5M, or $11.5 per share (or $29.3 (40.8 -11.5) per share above "book value").
The better metric would be to look at the price/book ratio. Freedom's price to book ratio is negative while Ruger is in the 10x range. Price to book also accounts for (by removing) the impact of intangible assets which can be misleading (especially goodwill) that were acquired via acquisitions. Notice that Freedom's intangibles account for over 25% of balance sheet assets while Ruger has none.
The debt would only be dilutive if it was convertible or had some equity kicker attached to it (ie warrants). If they issue regular debt, using your example, it's like refinance my current 5% mortgage at 3.75%. Or if they issue regular debt to buy stock... It's like doing a cash out refinance and using the proceeds to buy down my investment partners interest from 50% to 25%. Now the property that once yielded me $1K per month now yields 1.75K. Ie, the transaction would be anti dillutive.
I agree, both parties are essential one in the same and both are corrupt looking to take more power. They have to disarm the populace before they seize private financial accounts, hence the "gun control" efforts... It's all about control over the people.
If they issue non convertible debt securities with no equity kickers (ie warrants) then the total outstanding shares will not change. My stock holding as a percentage of the Company does not change and therefore would not be considered dillutive. Explain to me how "all debt is dilutive". I'm not a "financial wizard", but I am a CPA and know enough to call you on your BS. Perhaps you are a scared short fearing a massive buy-back announcement?
I agree, good point. Watch your 401K and retirement accounts closely, they will target those first (ie 5% "one time" tax on their value to fund the next stimulus package (bailout) or war. If the dollar were to be significantly devalued (hyper inflation), you can barter with your guns should you need to feed your family. We're in a new era (post 2008 Bush/Obama recessions), guns are now considered a store of value which has and will continue to drive demand.
Go read (reread) the S-3 pal...it says the company can issue debt securities. These would not be dilutive and the proceeds could be used to pay off the senior debt (refinance) or buy back common stock.
Mania will take awhile to die down. All those that tried to buy but couldn't (due to lack of inventory) will remember the run on guns and continue to buy when opportunity arises. Additionally, SWHC and RGR have A LOT guns to make and sell just to replenish depleted distributor inventories.
Exactly. They could be setting up to borrow money to both refinance their 9.5% debt and to buy back stock. Both would be positive on the EPS. I wouldn't make sense for them to issue shares to buy them back on the open market. If they are going to issue shares, they must be anticipating a big move up in the stock price (hence why they repurchased shares recently).