Research In Motion Ltd. moved to prop up its sagging share price Thursday, announcing that it will repurchase up to $1.2-billion (U.S.) worth of its stock over the next 12 months.
The BlackBerry maker said the program will begin Monday and covers 3.6 per cent of outstanding common shares at current prices. Executing the full buyback would take a sizable bite out of the company's cash reserves. RIM generated $1.2-billion of cash from operations in the first six months of its fiscal year and reported having $2.5-billion of cash and investments on hand as of Aug. 29.
But the board of directors sees a buying opportunity and a method to support to a weak share price with the buyback. RIM shares have plummeted 32 per cent since Sept. 24, when management reported quarterly results that disappointed the Street.
"We believe the share repurchase may signal management's confidence in the business and cash flow capability as well as their view of value in RIM shares. The share repurchases should provide some level of support," Phillip Huang, an analyst with UBS Securities Canada Inc., wrote in a morning research note.
However, the company must still prove to investors that Apple Inc. and other competitors are not starting to erode RIM's profitability, he said.
"Although the share repurchase should give investors some comfort, we believe headwind concerns will likely remain, putting the onus on the company to continue to disprove market concerns through earnings strength. Multiples are likely to remain compressed until the company shows sustained signs of earnings strength and acceleration," Mr. Huang wrote.
In a press release issued Thursday, RIM said: "RIM's board of directors believes that a share repurchase program at this time is in the best interests of RIM and its shareholders, and will not impact RIM's ability to execute its growth plans, given the strength of RIM's balance sheet and expected cash flow generation over the next several quarters."