The defense majors Northrop Grumman Corp. (NOC) and L-3 Communications Holdings Inc. (LLL) have declared share buybacks, bringing in good news for investors and shareholders amid the cloud of sequestration, which hurt the top line of defense companies in recent times.
The board of directors of Northrop has approved the repurchase of additional $3 billion of the company’s common stock. In the third-quarter 2014 earnings call, Northrop reported repurchase of 6 million shares for $753 million, thus boosting shareholder value.
L-3 Communications too has declared that its board of directors approved the repurchase of additional $1.5 billion of its common stock through second-quarter 2017. The repurchase, which is to be immediately effective, marks the company’s seventh repurchase program.
Strong balance sheets allow the companies to repurchase shares. As of Sep 30, 2014, Northrop had cash & cash equivalents of $3.40 billion while L-3 Communications had $508 million in cash & cash equivalents as of Sep 26, 2014. Also, net cash from operating activities of Northrop and L-3 Communications in third-quarter 2014 were $933 million and $390 million, respectively.
Why are the Defense Companies Repurchasing Shares?
In a ploy to outwit sequestration hazards, defense companies focus on cutting costs and improving margins. The companies’ share repurchase programs not only deploy cash to create shareholder value but also reveal their financial strength and enhance operational capabilities.
Share repurchase is simply an instrument used by the companies to return cash to its shareholders, thereby creating shareholder value. A share repurchase program represents solid financial performance by the company, strong balance sheet and enhances confidence in the company’s long-term outlook. It improves performance metrics of the company by increasing its Return on Equity and Return on Assets and boosts bottom line. It also represents cash deployed for the benefit of the company’s shareholders, which serves it well over the long haul.
Defense prime Lockheed Martin Corp. (LMT) had stated in its third-quarter 2014 earnings call that it will initiate a new cash deployment strategy and reduce the total outstanding share count to below 300 million shares over a period of three years. It had also boosted its share repurchase authority by $2 billion.
The Boeing Company (BA) expects to complete the repurchase authorization of $5.8 billion over the next two years. In its third-quarter 2014 earnings call, it had repurchased 8 million shares for an amount of $1 billion.
Zacks Rank
L-3 Communications currently carries a Zacks Rank #4 (Sell), while Northrop carries a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment