Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll draw up a list of companies that have announced stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 105,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, Fools should take notice.
Here are some of the latest companies to announce share repurchase programs.
Company |
Buyback Announcement Date |
Amount of Buyback |
CAPS Rating (out of 5) |
---|---|---|---|
Lennox International |
6/2/2008 |
$300 million |
** |
American Oriental Bioengineering |
6/2/2008 |
$75 million |
**** |
Exponent |
6/3/2008 |
$35 million |
***** |
T. Rowe Price Group |
6/5/2008 |
15 million shares |
**** |
Garmin |
6/6/2008 |
10 million shares |
**** |
Siemens |
6/6/2008 |
$3.1 billion |
**** |
Kaiser Aluminum |
6/9/2008 |
$75 million |
**** |
Overseas Shipholding |
6/9/2008 |
$250 million |
***** |
United Rentals |
6/10/2008 |
27.2 million shares |
*** |
Hartford Financial Services |
6/10/2008 |
$1.5 billion |
*** |
Sources: Company press releases; Motley Fool CAPS.
Investors at CAPS seem to have a generally high regard for this group of companies announcing buyback programs; most have received ratings of three stars or better. Yet it should be noted that just because a company has announced a buyback program doesn't mean it has to follow through. A company is not obligated to repurchase shares just because it has announced its intention to do so.
Buybacks have been partially fueled by the easy credit policies of the past few years. Companies didn't mind borrowing big bucks to repurchase their shares, even if they were trading at all-time highs. According to Dealogic, there was $538 billion in buybacks last year among S&P 500 companies with $138 billion in the fourth quarter alone. Yet announced buybacks in the first quarter of 2008 have slumped to just $76 billion. With credit policies tight, we may see far fewer share repurchase programs in 2008 -- or more companies issuing shares to raise money.
Lost on the way
GPS maker Garmin has seemingly lost its way, if the direction of its share price is any indication. Since hitting $125 last October, the stock has lost two-thirds of its value. Sure, it has bounced off its low of $39 a stub, but that seems to be little more than a detour. Pricing pressures, margin contraction, more intense competition -- those are the problems weighing on shares right now.
Yet stock price is a poor indicator of whether a company has lost its bearings. We could look at valuation metrics and see that, at about 12 times trailing earnings, Garmin is pretty cheap. Or we could eyeball its PEG ratio of 0.8 and remark that, with analysts anticipating 18% growth over the next five years, Garmin is positioned to navigate to higher returns for investors. But is it investing enough to achieve that growth? Sure seems like it. The company has grown R&D expenses by 44% over last year, and has grown them every quarter for more than a decade. This is why we're eagerly anticipating the launch of the Nuviphone, even if it's fraught with danger because it challenges the iPhone on its own turf.
CAPS investor Xandamere thinks the market is valuing Garmin today as if it were going to become irrelevant tomorrow:
Wall Street is pricing Garmin like it's going to stop growing and eventually fade into irrelevance. I do understand the fear...the company ... [relies] on one line of technology for its revenue, and that line of technology could be replaced... Despite these threats, there is still a point where the stock just seems too cheap. All of the fear is factored in, Garmin has a strong balance sheet and a powerful history of innovation, margins are superb, and cash flow exceeds GAAP earnings. Garmin would really have to suffer a complete destruction of its business for the stock not to be a bargain at these levels.
Foolish fallout
You've heard from your fellow investors -- now it's your turn. Motley Fool CAPS is a completely free, fun service where more than 105,000 investors have their say every day. Sign up for CAPS today, and share your best pitch for why your favorite stock will beat or lag the market.