I'm highly skeptical about the economic value of most share repurchase programs. To see why, look at the following graph of the total buyback dollar amount for the companies in the S&P 500, compared to the average price of the index on a quarterly basis:
Source: S&P Capital IQ.
Share buybacks for the S&P 500 accelerated in the second half of 2004, culminating in a sharp spike during the first two quarters of 2007 -- just as the stock market was peaking. Conversely, when stocks traded at bargain prices during the worst of the crisis, share buybacks dried up. Then, as stocks became more expensive during the rally that began in March 2009, companies once more became happy to step up the dollar amounts spent on share repurchases.
Still, not all buyback programs hurt shareholders. In order to ferret out the smart capital allocators and shame those who fritter away shareholder capital, I've begun to track newly announced share repurchase programs. Today, it's the turn of electronics manufacturer Jabil Circuit (NYSE: JBL ) .
How much, for how long?
Jabil's new repurchase authorization is up to $100 million worth of shares to be acquired over the next 12 months. There are no other restrictions on the program.
How cheap is the stock?
Jabil's announcement doesn't refer to either price or intrinsic value. That's not a positive because the relationship between price paid and value will determine whether the share purchases are compounding or destroying shareholder wealth. We've got no way of knowing whether management understands that principle. Just how cheap (or expensive) are the shares right now? Based on price-to-earnings, Jabil trades in the middle of four of its competitors:
|Motorola Mobility (NYSE: MMI )||40.2|
|Flextronics International (Nasdaq: FLEX )||7.0|
|Sanmina-SCI (Nasdaq: SANM )||5.0|
Source: S&P Capital IQ.
Is this a buy signal?
Yes, Jabil's price-to-earnings multiple is in the top quintile compared to its industry, but it's in the bottom one relative to the stocks in the S&P 500 and its own five-year history. That suggests that the entire industry is cheap right now. At less than eight times next 12 months' estimated earnings, Jabil shares look reasonably attractive on a first pass. The other members of the table do, too -- although Motorola looks complicated, mind you -- and you can track all of them with our free application, My Watchlist.