FBR thinks a levered buyback would be a savvy way for Microsoft’s (MSFT) Steve Ballmer to exploit MSFT’s strong cashflow and credit-worthiness and prove to investors that he does care about the stock price:
We would applaud the announcement of a leveraged buyback as it would: (1) be nicely accretive, (2) improve ROE, (3) provide MSFT the flexibility to execute a larger buyback, while maintaining its ability to be acquisitive, (4) and provide the company with an improved capital structure. The financial impact of a leveraged buyback should improve MSFT’s valuation and affirm management’s faith in the company’s prospects and change the perception that management does not care about its stock price.
FBR maintains their Outperform rating and (crazy) $40 target.
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