Buybacks -- they're back! Despite talk of still-tight credit markets, Wall Street's back on the buyback bandwagon. Already this year, we've seen high-profile buyback announcements at both CVS Caremark and Hewlett-Packard. Now comes news that industrial titan Tyco (NYSE: TYC) is hopping aboard the buyback train with a monster $1 billion repurchase authorization.

Investors seem pleased with the plan, bidding up Tyco stock a good 1.9% yesterday, and the stock's floating higher today as well. But is this really the best idea for Tyco? As in past columns of similar stripe, our analysis boils down to two basic questions:

Can it pay?
Easily. With $1.8 billion to play with, Tyco could buy back its whole repurchase authorization tomorrow, if it so chose. And while Tyco also carries $4.2 billion in debt, debt is cheap right now. (Just last month, IBM was able to float $1.5 billion in corporate bonds at the lowest interest rate ever recorded -- a bare 1%.)

This being the case, there's no pressing need for Tyco to earmark its cash for paying down debt. That's especially true when you consider that the company's throwing off new cash at the rate of $2 billion a year right now.

Should it pay?
Absolutely. At today's price, Tyco's arguably one of the better buys on the planet -- for investors and for its own management. Just look at how Tyco's valuation stacks up against its peers:

Company

P/E

Price-to-Free Cash Flow

Projected Growth Rate

Honeywell (NYSE: HON)

15.0

8.7

11.2%

Tyco

17.9

10.2

13.7%

United Tech (NYSE: UTX)

15.5

12.5

10.4%

Emerson Electric (NYSE: EMR)

19.5

12.8

14.2%

3M (NYSE: MMM)

15.1

14.0

12.0%

Source: Capital IQ, a division of Standard & Poor's and Yahoo! Finance.

Admittedly, Tyco doesn't look like much of a bargain at first glance. Its 17.9 P/E ratio makes it appear to be the second-most-expensive stock on the list. But dig a little deeper, and the truth is quickly turned on its head. Valued on its free cash flow, Tyco is the second cheapest stock on the list (lagging only Honeywell), and the second-fastest projected grower to boot.

Foolish takeaway
With plenty of cash to fund its buyback, little need to pay down debt, and an enviably low price, I see no reason whatsoever why Tyco should not proceed with its planned repurchase. To the contrary -- this stock is cheap! In fact, toss in the tidy 2.3% dividend Tyco pays its shareholders, and I see no reason why individual investors shouldn't tag along for the ride.