Arrow to Reward Shareholders with $200M Buyback Program - Analyst Blog

Colorado-based global electronic component distributor, Arrow Electronics Inc.'s (ARW) board of directors recently approved a new share repurchase program. The latest buyback scheme reflects the company's sound financial position and favorable prospects.

The new authorization permits Arrow to buy back up to $200 million worth of its common stock representing nearly 3.7% of its total outstanding shares at the closing price of $56.06 on Dec 12, 2014.

Per the new program, Arrow will have the discretionary power to terminate its buyback at any time it wishes and can repurchase its common stock under the prevailing market and business conditions. A Rule 10b5-1 can be entered into by the company under its own jurisdiction for facilitating its share repurchases even under restricted security laws.

Enacted by the U.S. Securities and Exchange Commission in 2000, Rule 10b5-1 allows major holders of a publicly traded company to sell a predetermined number of stakes at a preset time. The corporate generally use this plan to avoid allegations of insider trading.

The company has a consistent track record of returning cash to its shareholders through share repurchases. Since 2010, Arrow has returned approximately $1.2 billion through share buyback programs. During the first three quarters of 2014, the company returned nearly $189 million through share buybacks. However, the company does not pay any dividend.

Arrow's strong balance sheet and cash flow provide it with the financial flexibility to undertake shareholder-friendly initiatives as well as scope for product and geographical expansions. The company generated operating cash flow of $216.2 million in the first nine months of 2014, ending the period with cash and cash equivalents of nearly $258.2 million.

Some other companies with a consistent track record of returning excess cash through share repurchases and dividend payments include Yahoo! Inc. (YHOO), SanDisk Corporation (SNDK) and Accenture plc (ACN).

We believe that dividend payments and share repurchases not only enhance shareholder return but also raise the market value of the stock. Through dividend payouts, companies bolster investor confidence, persuading them to either buy or hold the scrip. Looking ahead, Arrow remains confident of its growth potential, thereby raising hopes for further share buybacks.

Currently, Arrow carries a Zacks Rank #2 (Buy).

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