If you've read my February article titled "U.S.A., Another Historic Misallocation," you know that I'm highly skeptical regarding the economic value of most share repurchase programs. As I remarked at the time:
With the previous cyclical bull market under way, share buybacks for the S&P 500 accelerated in the second half of 2004, capped off with a sharp spike during the first two quarters of 2007 -- just as the stock market was peaking. Similarly, there was a spike in share buybacks during the second half of 1999 through the first quarter of 2000, as the technology/large-cap share bubble was having its last hurrah.
Wealth-destroying buybacks are one of my bugbears, but not all buyback programs are detrimental to shareholders. Tracking individual companies' programs more systematically will enable me to praise smart capital allocators and shame those who prefer to fritter away shareholder capital, buying high and selling low. Today's example is from Coca-Cola Enterprises
Buyback announcement: Sept. 12
Amount/time frame: $1 billion, at least half of which the company intends to purchase in 2012.
Buyback history: From a company press release: "CCE is now on track to complete its current share repurchase program of approximately $1 billion by the end of 2011. Since the program was announced in the fourth quarter of 2010, the company has purchased approximately $750 million of its shares, including approximately $150 million to date in the third quarter."
Relative valuation:
|
Company |
Forward P/E |
|---|---|
| Coca-Cola Enterprises | 11.1 |
|
Dr Pepper Snapple |
12.8 |
|
Coca-Cola |
17.0 |
|
PepsiCo |
13.0 |
Source: Capital IQ, a division of Standard & Poor's.
Verdict: Coca-Cola Enterprises' price-to-earnings is in the middle of the range of its industry and that of its own five-year history. With the shares trading at 11.1 times the earnings-per-share estimate for the next 12 months, this share buyback program looks like an acceptable use of shareholder capital. In fact, I'd go so far as to say that Coca-Cola Enterprises is worth putting on your watchlist. Click here to put Coca-Cola Enterprises on your free stock Watchlist.
