(IBM) gave the market a big boost with an announcement that its board of directors authorized $15 billion in additional funds for its stock repurchase program, raising the total money available for repurchases to $15.4 billion.
The thing with repurchase programs is that there is no guarantee they will ever be carried out in their entirety. The latter understanding is why many buyback announcements don't really move the dial that much for the broader market or the individual stocks when they are announced. It is a bit different, though, in IBM's case.
IBM's news had a palpable impact because the company said it expects to spend up to $12 billion on stock repurchases in 2008. The market, in turn, found that to be a credible statement because IBM also took the occasion to bump up its 2008 full-year earnings per share guidance by $0.05, saying it now expects EPS of at least $8.25 compared to prior guidance of $8.20 to $8.30.
Companies don't provide updated earnings guidance if they aren't going to carry out the buyback activity in earnest fashion like IBM plans to do.
IBM expects to carry out the repurchases with cash from operations. This is an encouraging consideration for the market, too, since it can be assumed a company wouldn't be inclined to move forward with such an aggressive plan, using cash from operations, if it wasn't feeling good about its prospects.
IBM's news has ignited some renewed buying interest in the technology sector, which has underperformed the broader market badly year-to-date with a 14.4% decline. IBM, on the other hand, has outperformed the market by a healthy margin. Including today's gain, Big Blue is up approximately 5.0% for the year compared to a 6.1% decline in the S&P 500.
IBM's good news trumped the negative economic headlines in the minds of investors. In addition to its repurchase plan, the company improved its 2008 EPS guidance to "at least $8.25" from a range of $8.20 to $8.30. IBM also announced product enhancements for its mainframe software lines.
After starting in negative territory, major indexes finished with solid gains on Tuesday.
Action in the broader market was positive, with 22 stocks rising in price for every nine that declined on the New York Stock Exchange. NASDAQ breadth was 19-11 positive.
