Financial analysts say Columbus-based engine manufacturer Cummins announcing plans to buy a billion dollars worth of its own stock may be a calculated move to send a message to shareholders.
“If you’re asking me whether I think that there’s an element of public relations in undertaking this, I would have to say yes,” says Bloomington financial advisor Malcolm Webb.
Webb notes the planned purchase isn’t a sure thing, but would represent an amount of stock equal to about five percent of the total value of the company’s outstanding shares if it goes through. But Webb says there’s more than one school of financial thought on whether a company purchasing its own stock is a sound move.
“Some analysts might like companies to invest their money in new plants, new equipment and new ideas,” Webb says. “Other analysts are going to be happy with the confidence that a company has in their future cash flow to buy their own stock.”
Cummins has made a regular practice of stock buybacks in recent years. The $1 billion buy is the first since the company began the process last month of laying off as many as 1,500 employees. Cummins spokesman Jon Mills declined a request for an interview.