COLUMBUS, Ind. — Cummins Inc. has announced that its board of directors has authorized the company to repurchase up to $2 billion of its own shares in what local analysts said was a sign that Columbus’ largest employer is generating a lot of cash and finds its stock attractive.
Cummins, which is headquartered in Columbus and employs about 8,000 people in the area, said Wednesday that its board had given the repurchase plan the green light after the company completes a $2 billion repurchase plan authorized in 2019.
“The latest share repurchase program reinforces our commitment to delivering strong returns to shareholders and reflects our confidence in our long-term performance,” said Cummins Chairman and CEO Tom Linebarger in a statement.
Local analysts said share repurchases are a common practice and characterized Cummins’ announcement as “good news.”
Stock repurchases occur when a company buys back its own stock, which reduces the number of outstanding shares and “re-slice the pie of profits into fewer slices, giving more to remaining investors,” according to Bankrate.com.
When companies generate excess cash, investors generally want it to be put to use, said Roger Lee, senior research analyst with Columbus-based Kirr, Marbach and Co.
Companies can do that in a variety of ways, including investing in new machinery, research and development or acquiring another company, Lee said. But if officials opt not to spend the cash in one of those areas, they may consider increasing dividends for shareholders or — if they think their stock is undervalued — they might buy back shares.
“(Cummins) is doing very well, they’re generating a lot of cash and they think the best use of cash at this time is buying back their own stock, and it’s a good indicator that they think the stock is attractive otherwise they wouldn’t be buying back stock,” Lee told The Republic.
For the complete story, see Thursday’s Republic.
