JDS Uniphas-ing Out Stock

Recs

2

Despite all the talk of constriction in the credit markets, Wall Street's buyback binge continues. Tech firms have been particularly active, and yesterday, JDS Uniphase (Nasdaq: JDSU) was the latest big name in tech to announce a stock repurchase program. Management aims to remove $200 million worth of its shares from the public markets over the next two years. Which brings us to our two key questions:

Can it pay?
Easily. JDS has nearly $1 billion in cash in the bank today. Granted, the company also carries nearly $600 million in debt, but its cash on hand would suffice to cover the entire buyback plan immediately -- twice. What's more, JDS generated free cash flow of roughly $128 million over the last 12 months. If it keeps churning out cash at that rate, further buybacks could be in the offing.

Should it pay?
But would that be a good idea? To "quality check" the Foolishness of JDS' decision, let's see how the stock stacks up against a few of its competitors:

 

P/E

Price-to-Free Cash Flow

Projected Growth Rate

JDS Uniphase

n/a

20

24%

Agilent (NYSE: A)

23

17

14%

Coherent (Nasdaq: COHR)

110

25

10%

Finisar (Nasdaq: FNSR)

n/a

n/a

18%

Bookham (Nasdaq: BKHM)

n/a

n/a

15%

P/Es are looking mighty dicey in this field of business, with only Agilent sporting anything close to a reasonable-looking number, and most everyone else lacking the positive trailing-12-month earnings necessary for calculating a non-nonsensical P/E. But fear not, dear Fool. We've got a better measure of profitability in our toolkit, and it's telling us that not only is JDS right to be buying back shares today -- it's also the cheapest stock of the bunch.

JDS is now selling for roughly 20 times free cash flow, which looks mighty attractive relative to analyst projections of 24% growth for the stock. Agilent's almost as cheap, but sits just the wrong side of the 1.0 P/FCF/G divide, while Coherent seems even more drastically overpriced. (And Finisar? Bookham? Don't even get me started on these profitless wonders.)

From a strict valuation perspective, JDS looks like a buy, especially in an industry where such values are few and far between.

For related Foolishness, read:

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

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Related Tickers

11/10/2009 12:36 PM
A $26.87 Down -0.09 -0.33%
Agilent Technologi… CAPS Rating: ***
FNSR $7.92 Down -0.25 -3.06%
Finisar Corp CAPS Rating: ***
JDSU $6.81 Down -0.13 -1.87%
JDS Uniphase Corp CAPS Rating: ***
COHR $25.72 Down -1.27 -4.71%
Coherent, Inc. CAPS Rating: **

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