Ameriprise Buys Back $1.5B in Stock – Analyst Blog

In an attempt to return value to its shareholders, on Tuesday, the board of Ameriprise Financial Inc. (AMP) announced the authorization for a stock buyback program of its common shares worth approximately $1.5 billion. This stock repurchase is expected to be valid till the company’s annual shareholders meeting in 2012.

 

Management of Ameriprise projects to fund the buyback from the working capital and from the profits earned in the upcoming quarters. The company intends to make the offer in the open market, based on feasible market conditions.

 

By this process, Ameriprise attempts to utilize its capital optimally by absorbing the repurchased shares and reducing the number of outstanding shares in the market. This in turn will not only increase the relative ownership stake of each investor due to fewer share count or claims on the earnings of the company, but will also help retain shareholders’ confidence in the stock.

 

 

Over the last 30 days, 9 of 12 analysts covering the stock have increased their estimates for the second quarter of 2010, while no downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the second quarter is an operating earnings of 89 cents per share, which would be up by 54.2% from the year-ago quarter.

 

All the upward estimate revisions for the second quarter indicate a likelihood of upward momentum for the stock in the near term.

 

With respect to earnings surprises, the stock has been steady over the last four quarters, with all four positive surprises. The average remained positive at 28.9%. This implies that Ameriprise has surpassed the Zacks Consensus Estimate by 28.9% over that period.

 

The downside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.2%.

 

Ameriprise’s first quarter operating earnings were in line with the Zacks Consensus Estimate but higher than the prior-year quarter. Results for the quarter primarily benefited from increased asset-based fees from market appreciation and higher client activity, net inflows in wrap accounts and asset management, higher investment yields and higher income from spread products as a result of its re-engineering efforts. This was partially offset by growth in operating expenses.

 

Ameriprise continues to maintain a strong liquidity, which we think will help it grow through acquisitions and share buybacks. Moreover, the current authorization only justifies the company’s excessive capital position. Further, when a company announces a buyback it is usually perceived as a positive cue by the market as it often shots up the share prices, thereby improving the financial ratios and operating leverage in the upcoming quarters.