ASX 200 stock Harvey Norman Holdings Ltd (ASX: HVN) has just extended its on-market share buyback.
Initially set to conclude on 12 November 2024, the buyback period now spans a far longer period, pending market conditions, from 22 November this year to 21 November 2025.
But there "ain't no sunshine" for Harvey Norman shares at present, as Bill Withers would have sung. Brokers are turning bearish alongside investors.
Will the buyback spur some interest? Let's take a look.
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Why extend the buyback?
ASX 200 stocks routinely buy back their own shares when they have surplus cash that cannot be redeployed back into the business.
This can arise from a good business period or when cash piles begin to build up over time, with no meaningful use for it in the business's growth. The decision of buyback versus dividends hinges on tax considerations, with the latter creating a tax burden for shareholders.
This is known as 'capital management', where capital is all the cash destined for investment (and not operating expenses).
The Harvey Norman board views the buyback as a strategic move for capital management, especially considering "recent share price history".
The buyback will be conducted in the ordinary course of trading over the buyback period. The final amount of the buyback and the exact timing of any trades made from time to time will depend on a number of factors, including market conditions, the Company's prevailing share price, and any unforeseen circumstances that may arise during the buyback period.
The Company will only buyback shares at such times and in such circumstances as it considers beneficial to the efficient capital management of the Company and gives no assurance that the Company will buyback any or all of the 124,600,665 shares contemplated.
The Company reserves the right to suspend or terminate the buyback at any time.
At the ASX 200 stock's closing price on Thursday, which settled at $4.52, the estimated cash outlay for the buyback could reach around $580 million.
However, the company cannot guarantee that it will repurchase the entire 124.6 million shares planned, nor can it rule out pausing or terminating the buyback if needed.
Broker ratings on ASX 200 stock mixed
Following the ASX 200 stock's recent downsides, brokers have started to take notice. Goldman Sachs downgraded Harvey Norman shares from hold to sell today, citing concerns over potential market share loss.
The broker revised its price target to $4 on the stock alongside its lowered rating.
It said key competitors were gaining ground in electronics and tech, traditionally strong areas for Harvey Norman, making it a tough environment for growth.
Goldman's FY25 forecast for Harvey Norman now anticipates sales of $4.13 billion and pre-tax earnings of $628 million.
Despite this, consensus estimates point to a period of growth for the company these next two years.
According to CommSec, the median analyst estimate projects earnings growth of 17% per year over the next two years, hitting 39 cents per share.
Meanwhile it projects dividends of 31 cents per share by FYY26, a growth rate of 18% per year until then.
Foolish takeaway
As Harvey Norman extends its $580 million share buyback, investors might see this as a positive signal of the board's confidence in the ASX 200 stock's long-term value.
Whether this will eventuate depends on more than just a stock buyback, though. While buybacks increase ownership in a company without any additional investment, they do not suggest a fundamental improvement in the company, such as a period of earnings growth would.
In that regard, analysts expect Harvey Norman to grow earnings and dividends over the coming two years, which is a highly positive sign.
