Caterpillar Inc. (NYSE:CAT) announced today it plans a new $7.5 billion share buyback over the next five years. This will result in 640 million shares repurchased. Caterpillar is still in the process of completing its previous $6.4 billion buyback plan approved in 2003, which should be completed in a few months, a year and a half ahead of schedule. The heavy machinery maker will then commence the new buyback program.
Sure, just like the company said, share buybacks are a vote confidence in the company. Not only in the company's long-term growth prospects but in its cash-flow generation as well. No wonder then that CAT shares are up over 2% today as investors seemed to agree with management's vote of confidence.
CAT did mention that it will continue to use cash "primarily to fund growth through capital expenditures and strategic acquisitions, maintain well-funded pension plans and consistently increase dividends, with remaining cash returned to stockholders through repurchase programs."
This is exemplified in CAT's statement from yesterday about the company seeking to change the structure of its joint venture with Mitsubishi Heavy Industries Ltd.. CAT wants to increase its stake in the 50-50 venture to taking control of it with a 2/3 ownership.
While Caterpillar was hurt by its cyclical exposure to events in the U.S., especially the slumping housing market, it also has exposure to international markets. Increasing that exposure, especially in growing markets as it tries to do with the Mitsubishi joint venture, is a definite positive.
Cramer seems to agree.
Will Caterpillar's share buyback spur new life into CAT?
Posted Feb 15th 2007 2:12PM by Melly Alazraki
Filed under: Major movement, International markets, Forecasts, Good news, From the boards, Industry, China, Caterpillar (CAT), Japan
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