International Game Technology Share Repurchase: Take The Money And Run

Jun.15.12 | About: International Game (IGT)

International Game Technology (NYSE: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 ChartClick to enlarge
(Click to enlarge)

IGT Long Term Debt data by YCharts

Revenues trailing 12-months

IGT Revenues TTM ChartClick to enlarge
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IGT Revenues TTM data by YCharts

Market Cap and Shares Outstanding:

IGT Shares Outstanding ChartClick to enlarge
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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.

Stock price:

IGT ChartClick to enlarge
(Click to enlarge)

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.