Some L.A. Businesses Dive Into Plunging Market

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The stock market has been bouncing around like a gymnast in recent weeks. While that makes many investors nervous, several L.A. public companies are getting ready for the perfect flip.

Those companies have initiated stock buybacks to take advantage when their share prices swing low. Today’s basement-level interest rates help them finance it, too.

DineEquity Inc., the Glendale owner of the Applebee’s Neighborhood Grill & Bar and IHOP chains, and Colony Financial Inc., a Santa Monica real estate financial and investment firm, both announced Aug. 15 that their boards had approved stock repurchase plans. Later in the week, Aecom Technology Corp., a downtown L.A.-based provider of engineering and management services, and City of Industry retailer Hot Topic Inc. announced buyback programs of their own.

The recent market falls have created potentially good conditions for repurchasing shares.

“The lower stock prices are, the more attractive it is for a company to do a buyback,” said Jeff Van Sinderen, a senior analyst who follows Hot Topic at West L.A. investment banking firm B. Riley & Co.

Aecom, for example, has authorized the repurchase of up to $200 million worth of shares through an accelerated agreement with Bank of America N.A. The bank will purchase $100 million in stock for the company and Aecom could buy back additional shares on its own.

Companies are more likely to finance a stock repurchase by borrowing at today’s superlow interest rates. Aecom refinanced its credit agreement with BofA at a base interest rate of 1.5 percent or less.

“Given today’s low interest rate environment, we, along with other companies, have access to significant amounts of low-cost debt,” said Michael Burke, Aecom’s chief financial officer. “That makes it much easier to fund both stock buybacks as well as acquisitions that will advance our growth strategy.”

Meanwhile, DineEquity’s board has approved an up-to-$45 million buyback, Colony Financial announced that it will repurchase up to $50 million in shares over the next year and Hot Topic reported during its Aug. 17 earnings call that it plans to repurchase up to $25 million of its stock.

For a company that’s holding on to a lot of cash, a repurchase may be a smart investment, Van Sinderen said. By decreasing the number of outstanding shares, a company can boost earnings per share and, as a result, drive up its stock price.

“From a long-term investor perspective, it’s something we like to see,” Van Sinderen said.

But just because the board has approved a buyback program does not mean that a company will follow through, said Destin Tompkins, a senior vice president at Memphis, Tenn., investment banking firm Morgan Keegan & Co. Inc. who follows DineEquity. If market conditions improve and stock prices bounce back, a repurchase may no longer be such a good deal.

But as long as stocks remain undervalued, it’s an opportunity these companies are unlikely to pass up.

“It’s a value play,” said Darren Tangen, Colony’s chief financial officer. “It translates to returns on the portfolio that we’ve built.”

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