Good Buyback, Stupid Buyback (SBUX, TNAV)

Sometimes buybacks are smart, sometimes they are not.  Last night we saw two entirely different buybacks, one of which was a smart version of a buyback and one of which is nothing short of silly.  Starbucks Corporation (NASDAQ: SBUX) and TeleNav, Inc. (NASDAQ: TNAV) are the two buybacks worth noting this morning.

Starbucks Corporation (NASDAQ: SBUX) authorized the repurchase of up to 10 million shares of common stock.  What makes this one interesting is that it is in addition to the 10.1 million shares that remained available for repurchase at the end of its fiscal year.

TeleNav, Inc. (NASDAQ: TNAV) is a fairly recent IPO that has seen its shares of boom to bust.  Its board of directors has authorized the repurchase of up to $20 million under a share repurchase program.  The duration is 12 months and the funds will come from its working capital.

In case you haven’t figured it out, the Starbucks buyback is the sensible one.  As far as TeleNav is concerned, this is just silly considering its short history and post-IPO performance.

TeleNav is a troubled post-IPO that opened above $10 in May after selling 7 million shares at $8 (under the implied range of $11 to $13) and was considered a rather solid in its post-IPO trading due to it being one of the largest global wireless location-based services providers.  It has more than 17 million subscribers, but it is very dependent upon a small pool of providers in the U.S. and that creates a set-up for great hits and horrible misses.  When it warned that carrier pricing at its key client would pressure results, the remaining ‘hot’ part of its IPO dried up and the stock hit skid row.  Shares went from under $9 to under $5 before recovering in the last few months.

How many companies declare stock repurchase plans after only six months of being public?  This has to be one of a handful.  The stock has recovered much of its losses, but it still has this dependency on a small pool of clients via cellular carriers.  That has not changed even if things have improved in the company.  This buyback is a low value addition even if for some reason it creates a small boost in shares today.  The $20 million compares to a market cap of roughly $305 million.  The company had $131.1 million in cash and equivalents at the end of September.  This is nothing short of management being focused solely on the share price.

Starbucks is a buyback that makes sense.  It is not huge, but at the same time it is incremental and is a double of what was already on the table.  Starbucks went through its boom already and it is not exactly like it needs the capital for aggressive U.S. growth.  it has ample liquidity to fund its international growth, and it has more than enough earnings coverage to keep funding its dividends.  If you double the 10 million, that comes to close to $600 million, and Starbucks has a market cap of roughly $22.8 billion.  This won’t upturn the volume too much but can be an incremental add for shareholders here.

TeleNav is so far not seeing any gains in pre-market indications.  Starbucks is now up marginally after having seen lower share prices along with the market.

JON C. OGG