Hewlett-Packard (NYSE: HPQ ) must feel disrespected.
How else do you explain the company's bulldoggish commitment to buying back its own shares? This year, HP spent $10.9 billion on share repurchases in the open market, with $2 billion of that happening in the fourth quarter. That left only $2.7 billion of the old repurchase plan -- so the board tacked on another buyback authorization of $8 billion.
All of this activity in the open market was financed by incoming cash flows and a strong balance sheet. That's a more conservative approach than IBM (NYSE: IBM ) taking on $12 billion in new debt over the last nine months to buy $18.4 billion in IBM stock, but it's still a very serious act of share concentration. $10.9 billion is 10% of HP's market cap a year ago, though the company also prints up plenty of new stock certificates under its employee stock plans, so the share count today is just 5% lower.
Sun Microsystems (Nasdaq: JAVAD ) is another member of the buyback tech gang, having spent $1.3 billion of its minty-fresh $3 billion repurchase plan in the last quarter, and Dell (Nasdaq: DELL ) is doing it, too. All of that points to an optimistic long-term outlook for the big-iron computer sector, since three of the biggest names in server hardware feel undervalued today.
The backdrop to this act is slowing economic growth that makes Home Depot (NYSE: HD ) and Citigroup (NYSE: C ) hesitate to use their buyback plans, lest their dividend payments should suffer. HP's $0.08 dividend payout per share hasn't seen a raise since the spring of 1999, though. Big Blue, the orange apron, and Citi fit the income-generating investment mold better, with yearly dividend hikes stretching far back into the mists of time.
HP is running like a well-oiled machine, and margins and sales keep growing at healthy clips. The company has beaten Wall Street estimates every single quarter since Mark Hurd took over the CEO post, which wasn't always the case under Carly Fiorina. The GAAP income margin is up to 7% now, which takes us back to the early days of Fiorina and before the Internet bubble imploded, when HP had a 7.6% net margin way back in 2000.
The gains are backed by solid performance. So, despite a 140% share price boost since Hurd first helmed HP and a 20% gain year-to-date, I can understand if the company still feels like an unreasonably cheap date.