RH’s (RH - Free Report) board has approved a new share repurchase program of up to $700 million. While major indices declined sharply yesterday, RH shares jumped 10.1% following the news.
Per the program, the company might buy back shares through open market, privately negotiated transactions and other means. The size and timing of these purchases will depend on market conditions, investment opportunities and the company’s discretion. The stock repurchase program is not subject to an expiration date, minimum requirement of share purchase and can be modified or suspended at any time without notice.
As far as funding is concerned, the buyback could be funded with a combination of existing cash, cash flow and borrowings. As of second-quarter 2018, RH had cash and cash equivalents of $22.2 million compared with $21.6 million in the same quarter previous year.
The move underscores the company’s commitment toward shareholders’ wealth maximization. Share repurchases benefit the company’s earnings per share, book value as well as shareholder equity as the count of shares outstanding reduces. Thus, share repurchase programs raise optimism among investors and boost their confidence in the stock. RH pursues an aggressive share repurchase strategy. The company repurchased 20.2 million shares of common stock in fiscal 2017 at an average price of $49.46.
The company is confident about the outlook for its business and operational improvements and believes its shares to be undervalued. Meanwhile, the stock has gained 48.2% compared with the industry’s decline of 9.5% in a year. Also, earnings estimates have been trending upward for the current year over the past 60 days, reflecting analysts' optimism over the stock's future earnings potential.
Zacks Rank & Other Stocks to Consider
RH carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the Retail and Wholesale sector are Haverty Furniture Companies, Inc. (HVT - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and Tiffany & Co. (TIF - Free Report) , with a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Haverty Furniture reported better-than-expected earnings in the last four quarters, the average beat being 24.1%
Williams-Sonoma has an expected current-year earnings growth rate of 19.9%.
Tiffany & Co has an expected current-year earnings growth rate of 16.5%.
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