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Tellabs to Buyback Shares

Zacks Equity Research

A continuous drop in share prices over the year along with weaker business environment has forced Tellabs Inc. (TLAB), to buy-back shares worth $224.6 million. The company will commence its new share repurchase program from November, 26 onwards.

Tellabs exited the third quarter of fiscal 2012 with $941.8 million of cash & marketable securities. So, the company’s plan to repurchase shares after a gap of seven quarters will not only boost its share prices but will also drive the company’s earnings per share in the years to come.

Despite meeting the Zacks Consensus Estimates, Tellabs reported dismal financial results for the recently concluded quarter, where all the segments experienced decline in revenue along with a loss in earnings.

Moreover, the company also presented a somber outlook for the next quarter. Such poor performances were mainly attributable to increasing competition in its core wireless backhaul solutions segment and loss of major client like AT&T Inc. (T) from its limited customer portfolio.

Such poor showdown by Tellabs was also reflected on its share price movement recently, where the company shares hit a 19-year low last week. Therefore, in order to recoup investors faith as well as to maximize their wealth, the company reverts back to share buy-back program, which will also drive share prices.

At present, 367 million shares of Tellabs are outstanding. So, a repurchase of another 81 million shares will further reduce its market cap below the $1 billion mark. Moreover, it is to be seen how long the company can restore the investors’ faith by means of buying back shares and paying dividends instead of generating profit form the business.

We maintain our long-term Neutral recommendation on Tellabs. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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