Stock buybacks are generally considered a bullish signal on Wall Street. They announce management's belief that its stock is cheap, and that its own shares will provide its best return on investment. Like dividends, buybacks also let companies return capital to shareholders.
How buybacks work
Done right, share repurchases will increase earnings per share, so long as profits stay at least at the same level. A company with $1 million in earnings and 1 million shares outstanding will have an EPS of $1. Now, if it buys back 250,000 shares, leaving only 750,000 shares outstanding -- and total profits remain $1 million -- its new EPS would be $1.33, or $1 million divided by 750,000.
We're seeking companies that have announced stock buyback programs. Then we'll head over to Motley Fool CAPS to get some insight into the investing community's preferred picks. If companies announce stock buybacks, and CAPS' top investors endorse their future prospects, 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) |
|---|---|---|---|
|
Toyota Motors |
6/22/2007 |
15 million shares |
***** |
|
Petro-Canada |
6/20/2007 |
24.6 million shares |
***** |
|
Winnebago |
6/20/2007 |
$60 million |
* |
|
Kroger |
6/26/2007 |
$1 billion |
**** |
|
Harvest Natural Resources |
6/25/2007 |
$50 million |
**** |
The CAPS Advantage
Investors at CAPS feel pretty good about this selection of stocks announcing buyback programs. Only RV maker Winnebago was left holding the bag-o with a one-star rating. Market research and analysis firm Netscribes best sums up the mood about the maker of homes on wheels:
Though stabilizing gasoline prices could boost the consumer confidence, pressures in the housing market still loom over, thereby affecting the buying behavior. Management expects tough environment to prevail for the second quarter as well and the solution to catch the fast growth track just does not seem to click in the near term horizon. Considering the soft industrial environment and no concrete plans to drive revenues ahead, [Winnebago] has no smooth road ahead.
A better bet is top-selling automaker Toyota, with its five-star rating. At current market prices for its stock, the buyback program amounts to more than $1.85 billion. Nearly a quarter of the investors on CAPS who have opined on Toyota are considered All-Stars, top-rated players who consistently outperform their peers.
Top-rated Persuter doesn't see many speed bumps in Toyota's path. "Good quality vehicles, high fleet gas mileage, the implosion of American automakers (and the seeming unwillingness of the government to bail them out this time), and the rising price of oil combine to make TM a good pick."
While support for Toyota isn't universal, kdeken, for example, says Toyota's comeuppance is about due:
TM has had things all their way for the past five years. Think that will continue for the next five? I don't. Products are not favorably differentiated in today's market. I will give them the quality credit they deserve during the last decade, but others have caught their quality and offer more compelling products.
What's your take? Is Toyota still going to drive away with it, or will General Motors
Foolish fallout
Now it's time to add your voice. Wether you're a bull or a bear, for or against, Motley Fool CAPS is a completely free, fun service where you can pit your intellect against thousands of your fellow investors. Click here to sign up today.
Companies buy back shares because of undervalued stock, and Motley Fool Inside Value seeks those situations out. A 30-day free trial lets you see the inherent value the buybacks indicate.
Fool contributor Rich Duprey owns shares of Ford but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
