The Next Big Question For Dell: Share Buybacks, How Big? (DELL)

Dell Inc. (NASDAQ:DELL) had seen shares off roughly 1% after the earnings report yesterday on a day where the broader markets are up, although shares are barely lower at the end of the day.  PC’s are actually in a good upgrade market it seems, even if laptops are maybe being tooled as the root of today’s selling in the stock.

If you look around the world of headlines on Dell, you’ll see various headlines all talking about the earnings and the turnaround with either a positive or negative pitch.  Let’s go past this on down the road.  The company will have a conference call after its next report on November 29 and the shareholder meeting is set for December 4.  But shareholders may be figuring out that is just over 60 days that the company stock may have a new huge institutional investor acquiring shares again on the open market.  DELL ITSELF!

Its net income for the quarterly report was $733 million, while revenue was $14.77 Billion.  There are plenty of funds that can be used for buybacks and one thing is still clear: WALL STREET still loves share buybacks.  The problem has been that the ongoing SEC investigation has halted share buyback abilities, even though the company has completed its own internal accounting review. In March 2005 the company authorized a $10 Billion increase for its share repurchase program, and that is after it said it had spent more than $18 Billion to repurchase 1.2 Billion shares.   Last year it had to suspend its share buybacks pending the internal and SEC investigations. 

Wall Street is probably expecting even more than the original buyback plan to be announced.  Earlier this month Fitch reaffirmed the rating and took away a negative credit watch, but noted that an increase in share buybacks could be one of the risks.  The company said yesterday in the press release that it does NOT expect to resume its share repurchase program until after it has filed its fiscal year 2007 Form 10-K, which is expected to occur by the first week of November.  So now the question begs, "Just how much will be announced for the NEW share buyback plan once they are free to repurchase shares?" 

Whatever the amount is, the company should know that the amount announced probably needs to be more than a mere "we are resuming our share buyback plan" and that the new amount needs to be larger.  The company also may want to consider using the terms "rapidly accelerated share buybacks" to give some further juice to its shares.

Jon C. Ogg
August 31, 2007

Jon Ogg can be reached at [email protected]; he produces the Special Situation Investing Newsletter and he does not own securities in the companies he covers.