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
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 |
23 |
17 |
14% |
|
Coherent |
110 |
25 |
10% |
|
Finisar |
n/a |
n/a |
18% |
|
Bookham |
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.
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