Some stock buyback plans matter, and some do not. The Deere & Company (NYSE: DE) has announced that its board of directors has authorized the repurchase of up to $8 billion worth of additional common shares. This buyback matters. It matters potentially in a really big way if the company’s history translates into future actions.
The reason this repurchase plan matters so much is that the expanded plan was described as one which will supplement the existing $5 billion share authorization announced back in May 2008. As of October 31, 2013, Deere had approximately $1 billion remaining under that prior authorization.
After a 3% gain in the stock on the news, Deere’s market cap is $31.9 billion. Now investors will also have to consider that roughly $11 billion in stock has been repurchased since 2004. That is well over $1 billion per year being spent to buy back the stock. Deere showed that it also had approximately 375 million shares outstanding on October 31. Effectively, the amount now approved for buybacks is about one-fourth of the company.
To us, buying back one-fourth of a company’s stock is a big deal. Deere telegraphed that the shares being repurchased will be made at the company’s discretion in the open market. Deere’s most recent balance sheet showed more than $5 billion in liquidity without counting its massive receivables.
The company is trying to signal the long-term belief in the company with this announcement. Chairman and CEO Samuel Allen said, “Today’s action reflects our confidence in the company’s long-term future growth opportunities. The decision announced today exemplifies our commitment to creating superior long-term value for investors.”
Wall Street likes the buyback just as much as Main Street does. Deere shares were up 3% at $85.26 against a 52-week range of $79.50 to $95.60 and the consensus analyst price target is $86.16.