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.
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