Wal-Mart approves $7B buyback plan

[mumon]

SAN FRANCISCO (CBS.MW) -- Wal-Mart Stores said late Monday that its board had approved a $7 billion share buyback plan to replace a previous $5 billion program.

Shares climbed 23 cents to $52.33 in light volume after-hours trading. Ahead of the news, Wal-Mart's (WMT: news, chart, profile) stock closed the regular session down 18 cents at $52.12.

In June, the nation's largest retailer announced a $5 billion buyback plan.

Monday's plan would replace the previous program, the Bentonville, Ark. company said. Shares will be purchased in both the open market and through private transactions


"We screw our employees and pass the savings on to our stockholders."

[PinkTiger]

1. Why are they doing this?

Someone savvy with stocks, please explain this to me. What is the purpose?

[54anickel]

2. It will increase the earning per share. Less shares on the market

to divy up the profits to. Makes their shares look more attractive, and tends to reward share holders that continue to hold rather than sell back.
Meantime it can attract new buyers because of the increased earnings per share. It's generally used as a marketing ploy.

[54anickel]

3. That sounds negative, I should be more fair than that

had a Wal-Mart moment.

When used properly, it is a good way to raise the value of undervalued stock for your shareholders.

[Frodo]

4. Think of it this way.

A company makes a boatload of money. What do they do with it?

Well, they could pay it out to the owners of the company as a dividend, but dividends are taxed higher than the capital gains you would get by re-investing it in the company.

They could invest the money (outside the company), but you can actually LOSE money in investments, and people who know how to run a retail business don't necessarily know how to invest a couple billion dollars - it isn't the business they are in (like why banks auction reposessed properties, they COULD get more, but they aren't in the real estate business). Safer investments don't earn as much as the rest of their capital, so it drags down returns.

They could increase the capital account, but all that equity doesn't do you any good just sitting there. In fact it reduces your ROE and makes you look weaker to some analysts (never got that one myself).

They could "invest" it in growing the business, but if you grow beyond your capacity to effectively manage (like Boston Market) just for the sake of growth you can take a BIG hit later.

So what do you do? You buy back a ton of your own stock. It returns earning to shareholders (by buying them out), marginally increases the demand for your stock (you're buying on the open market) and that hopefully increases the share price, AND you now have fewer outstanding shares for the same level of earning. Greater earnings/share SHOULD mean higher share price (thus you are "paying" ALL of your shareholders).

In many cases you can hold that treasury stock to re-issue later (without a new underwriting). So it is often seen as a sign that a company's management thinks their stock is "cheap" right now and they expect to be able to re-sell it later at higher prices.

[stevebreeze]

5. back dated to Jan 1 2003 dividends are taxed the same as cap gains.

Just a clarification.
:kick: