Tags: Motorola | Solutions | strategy | MSI

Behind Motorola Solutions’ Buy Back Strategy

By    |   Thursday, 01 March 2012 10:06 AM

U.S. communications equipment maker Motorola Solutions (MSI) is dipping into its cash pile to buy back shares, a strategy management expects will help create a solid company that is looking ahead to growth.

The year-old Motorola Solutions is a data communications and telecommunications equipment provider and formerly part of Motorola, which split in two. The mobile phone division was spun off separately as Motorola Mobility in 2011 and is currently being acquired by Google (GOOG).

Sales at Motorola Solutions are up, with fourth-quarter revenues hitting $2.3 billion, up 5 percent from a year ago. Net income for quarter, however, fell 37 percent to $184 million, mainly due to one-time events such as stock-based compensation for employees.

Earnings from continuing operations during the fourth quarter rose 6 percent on year to $177 million. For the full-year 2012, the company expects revenue to grow about 5 percent compared with 2011.

Takeover talk

Motorola Solutions, it appears, is taking steps to avoid the fate of its sister company Motorola Mobility.

Motorola Solutions has said it plans to increase a stock buyback program by $1 billion to a total of $3 billion, about 20 percent of its market cap. Such a move could suggest the company doesn't want to be bought, so suitors may be sniffing around.

The move also could mean the company is buying back stock to make shares more attractive, which will give Motorola Solutions an edge when returning to the market later to finance growth initiatives.

Either way, Wall Street banks — and investors — are taking note.

At the end of January 2012, Argus upgraded the company to buy from hold, and big investors have snapped up stock in the company, including investment management giant BlackRock, which owns a 5.86 percent stake, according to a Securities and Exchange Commission filing.

Add to that, ratings agencies are viewing technology companies with ample cash reserves favorably.

Companies such as Motorola Solutions that carry investment-grade ratings and are sitting on ample cash to grow in the future will outpace struggling counterparts, analysts say. They may take over other companies themselves.

"Investment-grade companies with strong liquidity and debt capacity at their ratings may again be more aggressive in their shareholder-return activities," Standard & Poor's credit analyst David Tsui says in a report on the technology sector.

The company next reports on April 30.

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