Today, Beazer Homes (NYSE: BZH) announced plans to buyback 10 million shares, and unveiled their new growth strategy:
"The record results in the fourth quarter of fiscal 2005 reinforce the effectiveness of our profitable growth initiatives in achieving greater profitability by optimizing efficiencies, increasing market penetration, and leveraging our national brand. During that quarter, we improved homebuilding gross margin and operating income margin by 350 basis points over the prior year, driving a 98% increase in diluted earnings per share," said Ian J. McCarthy, President and Chief Executive Officer. "Beazer Homes will build upon these successes by targeting margins and return on invested capital within the upper quartile of the industry."
Perhaps it's the lack of oxygen, but somehow when an industry is at its peak, CEOs start speaking gibberish.
Now about the share buyback. 10 million shares is enormous for a company with only 46 million shares outstanding. Considering that the company doesn't really have any cash, and it will be debt-financed, it's makes it an even riskier ambition. Furthermore, there's a farcical element to it. While it appears to be a signal that management believes in the company and thinks their shares are good buy, they clearly don't. A look at the insider transaction tables shows that insiders have been constant sellers over the last six-months. In fact, 10% of the total shares insiders own have been dumped within this time period. So while they put on a brave face when it comes to their use of shareholder money, they don't quite exhibit such confidence with their own. In fact, just the opposite.
My view is that share buybacks on Wall st. are totally backwards. Companies should buy their own shares at the same time anyone else should--when they're a compelling value. Instead, companies often announce buybacks as a way of supporting a soaring stock price cause the value isn't so good. This is a terrible waste of shareholder money.
On that note, Beazer shares are at a new all-time high today. Hats off to them.
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