Nasdaq OMX Group Inc. (NDAQ - Analyst Report) recently announced that its Board of Directors has increased its authorization to repurchase its common stock by approximately $300 million, which is equivalent to roughly 8% of the outstanding shares at the current share price.
The company said that it will fund the repurchase using its existing cash balances, which as of June 30 stood at $491 million, down from $525 million as of March 31, 2012.
NASDAQ also specified that the buyback would be done gradually. It might resort to open market purchases, privately-negotiated transactions, block purchase techniques or any other means as decided by management.
The decision to repurchase is in line with the company’s strategy to capitalize on the available funds and boost shareholders value in the process. NASDAQ, since 2009, has bought back $1.1 billion of outstanding common stock that corresponds with roughly 50 million shares at an average price of $21.85. The buyback has reduced the company’s share base by 22% during the period.
NASDAQ strategizes to have a strong return on investment (ROI) in order to increase shareholders worth. The company’s ROI of 6.4% is in line with that of its rival NYSE Euronext, Inc. , and is considerably higher than the industry average of 1.1%. It is also higher than 4.7% for its peer CME Group Inc. (CME - Analyst Report) .
NASDAQ recently released its second quarter results. Its earnings per share of 64 cents surpassed the Zacks Consensus Estimate of 60 cents and the prior-year quarter’s earnings of 62 cents a share. However, its cash equities and derivatives remain feeble, based on lower industry trading volumes and unfavorable impact from foreign exchange.
Even though the increased share repurchase represents a positive step by the company in the interest of its shareholders, we remain cautious regarding its decreasing cash position, which has declined annually as well as sequentially given its decision to utilize the same in the buyback process.
NASDAQ’s share fell 16 cents (or 0.70%) to close at $22.63 yesterday. The company currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We maintain a long-term Neutral recommendation on its shares.