International Game Technology (IGT) on June 14, 2012 announced a $1 billion share repurchase plan. How large is that? Compared to 2011 figures, it is over 50% of revenues, 352% of net income, or 61% of long-term debt. The stock closed at $15.37. As of 10:35am on June 15th it is at $14.63
Since the fiscal year ending October 2006, the market capitalization has declined $6.9 billion, it was $11.8 billion in 2006 and declined to by year-end 2011 to $4.9 billion. This occurred while $2.4 billion was used to repurchase stock. Therefore, for every $1 billion used to repurchase stock, the market capitalization fell $2.9 billion.
From 2006 to 2011, revenues declined from $2.5 billion to $2.0 billion. Net income fell from $474 million to $284 million. Long-term debt increased from $200 million to $1.6 billion. Dividends fell from $169 million to $72 million.
Long-term debt chart:
IGT Long Term Debt data by YCharts
Revenues trailing 12-months
IGT Revenues TTM data by YCharts
Market Cap and Shares Outstanding:
IGT Shares Outstanding data by YCharts
Notice how the market capitalization falls as shares outstanding decline.
Treasury stock had an average cost of $19.26. So much for buying low.
Had the $2.4 billion used to repurchase stock since 2005 been paid out as dividends, the stock price might well be higher. It works out to roughly $7 per share outstanding in December 2006. Or roughly $1.16 per year. Taking $1.16 and discounting at 6%, it would be valued at $19.33. The $1 billion share repurchase works out to roughly $3.33 per share outstanding as of November 2011.
There are two sayings; follow the money and take the money and run. In this case investors may well wish to take the money and run.
Why own a stock when the Board is allocating cash to sellers of stock? Past share repurchases did not add value.
IGT data by YCharts
Every gambler needs to now when to hold 'em and when to fold'em. If I were at the table I wouldn't't walk away, I'd be running with the cash.
Source data: SEC filings.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.