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These Companies Are Set To Buy Back $30 Billion in Stock
The recent pullback in thestock market brings a silver lining for some companies.
Those firms that have announced new or extended stock buyback programs can now retire moreshares for a fixed dollar amount. And if the market slumps deeper in coming weeks and months, these buyback programswill deliver an even better bang for their buck.
I recently wrote about the stunning $455 billion in stock that has been reacquired by firms over the past fourquarters , noting that the trend isn't just a passing fad. In fact, the past two months of buyback announcements signal that the current quarter will be another sizzler.
A month ago, I tooknote of roughly $20 billion worth of buyback plans announced in July (which only partially reflects the full amount of buybacks that month) and I've tallied the buyback programs announced in August (among companies buying at least $400 million), and this new group accounts for an impressive $29 billion in share buybacks.
We can glean a few clear trends from these share buybackers:
- The majority of these plans are simply new plans to replace old plans that have now been completed, meaning these companies buy back their shares on a regularbasis .
- Many of thesestocks are valued right near the marketmultiple of 15 to 16 times projectedearnings .
- Many of these stocksoffer up a decentdividend as well, boosting their totalcash return to shareholders.
- Most of these buyback programs represent a meaningful amount of the current share count. (Both VMWare's ( VMW ) and Emerson Electric's ( EMR ) buyback programs are not really meaningful as they are only likely large enough tooffset stock option grants ).
- Most of these stocks are near their 52-week highs, extending the theme of the current era that companies no longer wait for their stock to fall out of bed before buying back stock. Nor do any of these stocks trade below tangiblebook value , which also had historically served as a key litmus test of buyback efficacy.
Still, the longer-term buyback programs for some of these firms have surely been impressive. Take toy maker Hasbro ( HAS ) as an example. The company's new $500 million share buyback (which would reduce the share count by 11% at current prices) is reasonably impressive -- until you look at what Hasbro has already been doing for nearly a decade.
Hasbro's Shrinking Share Count (millions)
By the end of 2013, Hasbro's share count will likely have fallen by 37% since 2005. And chances are, Hasbro will simply announce another buyback when this current plan is done.
On a related note, buybacks should also be seen as a key pillar of corporate staying power. As I noted in early 2012, investors were overlooking Hasbro's deep history and strong roster of brands, assigning the company amarket value half as large as games maker Zynga's (Nasdaq: ZNGA) market value.
Common sense has returned, and Hasbro now sports a much larger market value than Zynga. Remember that the next time you see an unproven company quickly leapfrog past a proven competitor like that. Reality eventually sets in.
Auto parts maker Visteon ( VC ) clearly embodies the new thinking about share buybacks. The company announced plans last month to sell its $1.5 billion stake in a joint venture with a Chinese partner. Visteon could have looked to pay downdebt or make anacquisition , or simply keep the ($1.2 billion after-tax) proceeds. Instead, almost all of themoney will go toward a share buyback that might reduceshares outstanding by 25%.
Lastly, conservative investors may want to check out Renaissance Reinsurance ( RNR ) which has been buying back shares for seven straight years, reducing the share count by 30% in that time. The newly announced buyback plan, which could absorb up to 13% of the additional share count, is a primary focus now. But when share buybacks are no longer the focus, then robust dividend growth will likely be the norm as this company can afford tosupport a $4.50 a share dividend (equating to a 5%yield ) while still keeping thepayout ratio below 50%.
Risks to Consider: Large buybacks often signal tepid organic growth prospects, so if investors continue to gravitate toward aggressivegrowth stocks , these shares mayunderperform .
Action to Take --> Most of these stocks appear reasonable valued, withforward earnings multiples in the mid-teens. Yet steady buybacks promise to tangibly boost earnings per share in coming years, pushing these stocks deeper into value territory.