Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) recently announced that its board of directors has authorized the repurchase of its common stock worth $100 million for over a period of up to 18 months. The timing of any share repurchase will be determined by the company's management, based on market conditions, share price and other factors.
Importance of Share Repurchase
Periodic share repurchases enable a company to boost shareholders' value through reduction of its total outstanding shares. Thus, it boosts earnings growth, assuming that net income remains unchanged from prior share repurchase levels.
In the past month, shares of the company have declined due to panic sell-off by investors due to the novel coronavirus scare. The current soft price scenario will present the company an opportunity to buy back shares at a cheaper price.
What Led to Repurchase Program
Aerojet Rocketdyne’s long-standing relationship with U.S. defense giants is a primary growth driver, considering growing demand in the rocket and missile propulsion markets.
Increasing demand and solid contract wins bolstered the company’s backlog. Aerojet Rocketdyne’s total backlog at the end of 2019 was $5.4 billion compared with $4.1 billion as of Dec 31, 2018. Of this, funded backlog amounted to $2.1 billion compared with $1.9 billion at 2018-end. Moreover, the company has been undertaking strategic initiatives to reduce costs and serve customers more efficiently through the Competitive Improvement Program (“CIP”). Once fully implemented, the CIP is expected to save $230 million annually for Aerojet Rocketdyne.
Such robust operating performance will generate adequate funds for the company to accommodate the new share repurchase program and make opportunistic buyback.
Price Performance
Shares of the company have gained 3.9% in the past 12 months against the industry’s decline of 26.9%.
Zacks Rank & Key Picks
Aerojet Rocketdyne currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Few better-ranked stocks in the same sector are Leidos Holdings, Inc. (NYSE:LDOS) , Transdigm Group Incorporated (NYSE:TDG) and AeroVironment, Inc. (NASDAQ:AVAV) . All the three stocks hold a Zacks Rank #2 (Buy).
Long-term earnings growth (3 to 5 yrs) of Leidos Holdings, Transdigm Group and AeroVironment is pegged at 7.5%, 11.9% and 25%, respectively.
Leidos Holdings, Transdigm Group and AeroVironment have trailing four-quarter positive earnings surprise of 11.19%, 10.6% and 5.72%, on average, respectively.
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Transdigm Group Incorporated (TDG): Free Stock Analysis Report
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Aerojet Rocketdyne Holdings, Inc. (AJRD): Free Stock Analysis Report
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