Management at Atlanta-based Home Depot is confident that the company’s stock, which has declined 43% year-to-date, is undervalued. In response to the situation, the retailer’s board of directors announced yesterday it has approved a share repurchase program of up to $2 billion, or nearly 67 million shares at the current share price (2.8% of total outstanding shares) effective immediately. The buyback program is open-ended and should allow Home Depot to periodically repurchase its shares on the open market.
Wall Street analysts say the program is a positive move, especially considering the home improvement giant finished first quarter 2002 with $5.2 billion in cash, giving it the capacity to fund the buyback without incurring debt. "We do not believe this announcement represents a strategic shift for the company. Home Depot recognizes that a share repurchase is not the best use of cash and will continue to focus on building new stores,in systems and entering new business areas as appropriate," wrote Salomon Smith Barney retail analyst William Julian in a report on the announcement.
"However, the share price has fallen over 40% year-to-date, creating an opportune time for the company to repurchase its stock. Moreover, we believe Home Depot’s stock buyback program reflects the company’s vote of confidence in the business and its sales associates."