Are Dolby and Motorola Solutions Wasting Your Money?
Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll find a few companies that announced new or expanded stock-buyback programs and then consult Motley Fool CAPS to see which of those companies the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce share-repurchase programs over the past month:
CAPS Rating (out of 5)
New or Expanded
|Dolby Labs (NYS: DLB)||*****||$100 million||Expanded|
|Motorola Solutions (NYS: MSI)||**||$1.17 billion||Expanded|
Source: Company releases.
But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself. Rather, use it as a launching pad for additional research.
A sound footing
Sound specialist Dolby Labs isn't as cheap as it was right after the revelation last year that it probably wouldn't be included in the latest Windows 8 build. That news shook the stock to its core, since revenues from Microsoft (NAS: MSFT) were such a big component of the total it took in. Dolby lost almost 45% of its value over the ensuing weeks.
While it's regained much of that lost ground and has risen more than 50% off the lows it hit, there's reason to think it can go higher still as smartphones are the next area for Dolby to conquer. It's gone from nothing two years ago to 4% penetration last year to an expected double-digit rate this year. With inclusion by Qualcomm (NAS: QCOM) on the new Snapdragon chipset, smartphone OEMs will find it easier to incorporate Dolby's technologies on their handsets. Expect the penetration rate to go much higher.
The problem with Dolby's buyback isn't that the stock isn't cheap, but rather it's done to simply offset the dilutive effects of the company's generous stock-option plan, a move that only adds to the other issues I've had with Dolby and its options. Even so, I agree with CAPS member buyn2hold that there are plenty of avenues for growth that make Dolby a good investment.
Dolby's inclusion on Qualcomm's Snapdragon chipset is the start of better [penetration] into the Smartphone market. They also have exposure to streaming with Netflix, VUDU, [Amazon.com], Apple, [CinemaNow] and recently HBO Go. There is room for growth in multiple markets and this should offset the loss of Windows revenue.
Add the sound specialist to your watchlist to get regular updates on its ability to make up the lost Windows revenues.
Hanging up on activism
As part of an overall $3 billion stock-buyback program, Motorola Solutions wants to reduce the stake that activist invest Carl Icahn holds in the company by about $1.17 billion by buying back 23.7 million shares he owns for $49.15 each. While Icahn will remain a big shareholder in the company regardless of the buyback, his representative will resign from the Motorola board of directors. Needless to say, his investment in the old Motorola has worked out well for him.
He was a key player in getting the communications and networking company to split itself in two, forming Motorola Solutions and mobile-handset maker Motorola Mobility (NYS: MMI) . With a wealth of patents to its credit, Icahn was instrumental in getting the latter company to put itself on the market and having Google swoop in and pay $12.5 billion for the company and its patent-rich portfolio.
Although 82% of the CAPS members rating the enterprise and networking leader say it will outperform the market indexes, the two-star rating they've assigned it underscores the lack of confidence in a turnaround. Perhaps with Icahn no longer calling the shots, it will leave the company freer to chart its own course from here on out. So add Motorola Solutions to the Fool's free portfolio tracker to keep track of its pace of change, and let us know on the Motorola Solutions CAPS page if you think an Icahn-free company is a better bet going forward.
Sign up for CAPS today, and share your best pitch for why having a company buy back its shares is a reason for you to buy, too -- or not!
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At the time this article was published Fool contributorRich Dupreyowns shares of Motorola Solutions and Dolby Laboratories, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Google, Qualcomm, Apple, Amazon.com, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Dolby Laboratories, Microsoft, Apple, Netflix, Amazon.com, and Google, as well as creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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