Expect Microsoft to Accelerate Its Buyback Plan

Considering the pace of its previous buyback plans, Microsoft Corp.’s (MSFT) new $40 billion share repurchase plan could be accelerated. The technology giant completed the previous buyback plan that authorized $40 billion over five years in just three. The plan before that was complete in just two years after being authorized for $30 billion over four years, according to Citigroup.

As of the end of the fiscal fourth quarter, Microsoft had $3-billion left on its existing plan, analyst Brent Thill said in a report, and the pace of its 2008 buyback was slowed substantially by the attempted takeover of Yahoo! Inc. (YHOO). It was just $13 billion compared to $27.5 billion in fiscal 2007.

The pace of share repurchases is management’s decision. So considering the fact that Microsoft brass is “bewildered” by the stock’s recent trading levels around 11.5 times 2009 earnings and there is now a lower likelihood of a complete takeover of Yahoo, Mr. Thill expects the pace will be sped up.

Assuming $5-billion in buybacks per quarter, which would mean the new plan is completed in two years, this would add $0.03 of additional earnings per share to Citigroup’s current estimate of $2.17 for 2009 and $0.07 to its 2010 forecast of $2.35.

The analyst expects Microsoft will continue to be active in software and Internet M&A, with flexibility provided by its more than $24 billion in available cash, more than $22 billion in annual operating cash flow, and up to $6 billion in authorized debt financing.