When Will Analysts Learn?
It was just a month ago when reporters wrote of the “pop” in GE (GE) shares following that firm’s large buyback announcement.
General Electric shares gained for a third consecutive session as investors continued to celebrate the sprawling conglomerate’s decision to increase its dividend and launch a share buyback.
Source: Wall Street Journal, July 27, 2010
Look at it since—GE stock is now underperforming the S&P 500 Index since the $15 billion buyback announcement:
If I were the supervisor of that HPQ analyst I would have him prove to me why an increase in accounting ratios such as P/E or return on equity, with no commensurate rise in free cash flow or return above that currently forecasted would result in a higher share price—it never has and never will—ask the people at IBM (IBM), Macy’s (M), Home Depot (HD), or those financial institutions which bought back several hundred billion dollars worth of stock prior to the credit meltdown.
Related Articles:
- New Era of Buybacks, Dividends and Mergers?
- Return of the “Hostile” Takeover?
- Why It Would Be Unwise For Firms to Boost Dividends
- The Folly of Share Buybacks
- The Folly of Stock Buybacks-Part II
- CFOs Making the Same Mistake Again-Stock Buybacks
Disclosure: No positions
Kenneth S. Hackel, CFA
President
CT Capital LLC
Subscribe to CreditTrends.com by Email
If you are interested in learning how to analyze the pension plan, including plan accounting, effect on earnings, cash flow, financial structure and valuation, order “Security Valuation and Risk Analysis” out this fall from McGraw-Hill.
