Cirrus shares get a boost from buyback news
NEW YORK (AP) — Shares of Cirrus Logic Inc. rose Wednesday after the chip maker announced plans to buy back $200 million worth of its common stock.
THE SPARK: Cirrus said the buyback will be funded from working capital and cash from the company's operations. Investors like stock buybacks, because they tend to boost the value of the remaining shares.
THE BIG PICTURE: Austin, Texas-based Cirrus makes chips used in audio and energy products. The company's stock has been rocked by high volatility and shareholder turnover since it reported its fiscal second-quarter results in late October.
Stifel Nicolaus analyst Tore Svanberg said that in the 14 days since the company released its earnings, 72.7 million of its shares have been traded, resulting in share turnover of about 53 percent. That's more than three times the amount in the 10 days before the earnings were released. And over the same period, the company's shares have lost about 26 percent of their value.
Svanberg said in his Tuesday note to investors that he thinks the selloff stemmed from profit taking ahead of potential tax changes set for next year, fears that the company's profits will peak soon and worries about Cirrus' largest customer Apple Inc.
THE ANALYSIS: Sterne Agee analyst Andrew Huang backed his "Buy" rating for the company, noting that since 2008 the company has completed three separate buyback programs and they all have been "quite successful."
Huang said in a Wednesday note to investors that the new buyback is unique, because the amount to be repurchased exceeds the company's cash balance, implying that its management is confident in the company's ability to reduce working capital and generate cash from its operations.
THE SHARES: Up 66 cents, or 2 percent to $31 in afternoon trading, after jumping as high as $32.24 earlier in the session. Over the past 52 weeks, the company's shares have traded between $14.26 and $45.49.