Capital Markets

Stock Market Rally Doesn’t Slow Buybacks

Healthy stock gains did not deter Dow, ITT, Goodrich, and others from repurchasing shares.
Stephen TaubOctober 27, 2006

Although stocks have been on a tear of late, the run-up doesn’t appear to have discouraged companies from repurchasing their shares. In the past week alone, several large and small companies announced significant stock buybacks.

Dow Chemical, for example, said its board of directors approved a new program to repurchase $2 billion of its stock. The program will begin once the current repurchase authorization — announced in July 2005 and now more than 70 percent complete — is concluded, the company added. “Dow stock represents exceptional value and this repurchase program underscores the board’s confidence that the company’s strategy will continue to generate strong levels of cash flow,” said Andrew Liveris, Dow’s chairman and chief executive officer, in a statement. Dow’s stock currently trades in the middle of its 52-week price range.

ITT announced that its board authorized the repurchase of up to $1 billion of stock. The buyback will occur over a period of up to three years, the company added. “This share repurchase program is consistent with ITT’s commitment to a balanced and disciplined capital allocation process,” said George E. Minnich, senior vice president and chief financial officer, in a statement.

The program replaces the company’s current practice, which has been to cover the shares granted or exercised in the context of ITT’s performance-incentive plans, it explained. Year-to-date through September 30, ITT repurchased 2.5 million shares for $136.4 million. There is no guarantee as to the exact number of shares to be repurchased, and the company has reserved the right to terminate the repurchase program at any time, it added.

Cabot Oil & Gas, a company with $2.6 billion in market capitalization, said it added 2 million shares to its buyback authorization, bringing the available program to nearly 2.4 million, or about 5 percent of its roughly 47 million share float. “Since early 2004 the company has taken advantage of market weakness and repurchased 1,945,900 shares at an average price of $37.84,” said Dan O. Dinges, chairman, president, and chief executive, in a press release.

“There are times when these investments are very compelling when compared to our underlying valuation, and we wanted the flexibility to continue to pursue this avenue,” noted Dinges. The stock currently trades at around $54, just off its all-time high.

Meanwhile, Goodrich, which has a $5.4 billion market cap, approved a $300 million stock-buyback program. The aerospace company said no time limit was set for completion of the program, but it expects repurchases to occur over a three-year period and account for about 6 percent of the total outstanding stock.

Small-cap companies are also taking similar measures. For example, Kemet Corp. said it will use $25 million of the $155.5 million of net proceeds from a recent convertible senior-notes offering to pay for common stock it purchased on the open market.