One day after releasing record third-quarter earnings, Black & Decker Corp. said its board of directors increased the number of shares the company is authorized to repurchase.
The Towson-based toolmaker ended its third quarter with authorization to purchase 2.2 million shares. The board added 3 million yesterday, authorizing the company to buy back 5.2 million shares, or 6 percent of the shares outstanding.
Typically, a company buys back its shares when it believes them to be undervalued. After a buyback, the earnings per share are spread across fewer numbers of outstanding shares, which improves a company's earnings per share and, the company hopes, boosts its stock price.
Black & Decker has been repurchasing its shares since early 1998. That January, the stock traded at a 52-week low of $38.31, but had surged to $65.19 by July.
Recently, the market has not been as kind. Black & Decker shares have fallen from their current 52-week high of $52.38 in January. On Tuesday, the day before the company announced its record earnings, shares hit a 52-week low of $27.56 before closing at $28.44. Yesterday shares closed at $32.50, up $1.88.
Since Black & Decker began its buyback, it has repurchased about 15 million shares, said Barbara B. Lucas, senior vice president for public affairs. The company ended the third quarter with 83.8 million shares outstanding.
"This is a textbook case of why you would do a stock buyback," Lucas said. "We thought it was undervalued, even at higher prices than these."
Barry Bannister, a securities analyst at Legg Mason Wood Walker Inc., called the buyback "a good use of cash." But on Sept. 14, the firm cut its rating on Black & Decker from "strong buy" to "hold" when the stock reached $36.19. Bannister said he didn't find the stock as attractive at that price, largely because of economic forces the company can't control.
"We still don't think investors have come to terms with the economic slowing we see in the next few quarters," he said.
Bannister and other analysts have predicted that holiday sales for power tools will be slow. He also believes that retailers such as Home Depot and Wal-Mart have the power to force vendors into pricing wars, and make them hold inventory.
Bannister said that if the share price rises, Black & Decker won't buy back all the stock it can. "If the stock were to run up, I bet they won't buy it back, because they shouldn't," he said.