Data services company Acxiom (NAS: ACXM) is planning to buy back up to $50 million worth of its stock in a move that CEO Scott Howe says is "an appropriate use of cash" at present. But is that all there is to it?
Acxiom's board of directors approved the buyback, which will be carried out over the next 12 months. For a company with a market cap of around $850 million, the repurchase certainly is substantial. Let's delve a little deeper, first seeing how Acxiom is placed financially and then how the market values its stock.
Where's the money?
Acxiom's free cash flow has declined by about a third in the past year, to $119.3 million. The company has been reducing its debt load, cutting long-term debt by more than $100 million since last year. A high EBITDA interest coverage ratio of 10.3 and a current ratio of 2.0 indicate the company is well-placed to pay off its debt and interest payments. The company shouldn't have any real issues in paying off its short-term obligations and funding the buyback.
What's its value?
Acxiom may be able to afford this move, but the important question is this: Does the buyback make sense? Let's take a look at how the company is valued when compared to industry peers.
Total Enterprise Value-to-Free Cash Flow Ratio
Responsys (NAS: MKTG)
Xerox (NYS: XRX)
Global Payments (NYS: GPN)
Source: Capital IQ, a division of Standard & Poor's; NM = not meaningful.
Acxiom's P/E is not meaningful since the company has been reporting losses, but those resulted largely from one-time writedowns. On the basis of forward P/E, as well as enterprise-value-to-free-cash-flow ratios, Acxiom isn't the most expensive stock in the list. And considering the stock's 40% year-to-date loss, the buyback doesn't look like the worst option as management looks to support the value of the shares.
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At the time thisarticle was published Shubh Datta doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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