Shares of Concho Resources (NYSE:CXO) cratered last month after the company posted disappointing second-quarter results. Not only did the Permian Basin-focused oil producer miss analysts' earnings expectations, but it also cut its full-year forecast and reported disappointing results for a well spacing test. That shellacking has sent shares down more than 28% for the year even though oil prices have rebounded nearly 16%.

While Concho's second-quarter report was a disappointment, its value proposition hasn't changed. As a result, the energy company is taking advantage of the decline in its stock price to buy back a big chunk of its shares.

A barrel of oil coming through money.

Image source: Getty Images.

Jump-starting its buyback

Concho Resources has shifted its priorities over the past year. The company has gone from focusing on growing production as fast as it can to living below its means so that it can generate free cash flow. That has enabled the company to more quickly pay down debt as well as initiate a dividend. It targeted to return even more money to shareholders in the future as its free cash flow grew.

However, with its stock price tumbling this year, Concho has accelerated that plan, doing so by selling its legacy assets in the New Mexico Shelf for $925 million. It plans to use 60% of that money to pay off debt, which will enable it to achieve its leverage target. It will use the rest to jump-start a share buyback program, which it has initially set at $1.5 billion. The company will fund the balance of its buyback with the increasing free cash flow it expects to generate in the future. At its current market value, that's enough money to retire more than 10% of its outstanding stock.

Following a well-known blueprint

Concho Resources is the latest oil stock to authorize a meaningful share repurchase program. It's doing so by following the same acceleration strategy as its peers. U.S. oil giant ConocoPhillips (NYSE:COP) drew up the game plan toward the end of 2016. At the time, ConocoPhillips aimed to sell $5 billion to $8 billion in assets, which would give it the cash to pay down debt and repurchase $3 billion in stock. It would go on to vastly outperform its plan by selling more assets than expected. That allowed it to pay down debt quickly, enabling it to generate more free cash flow to buy back its shares. As a result, ConocoPhillips is now on track to repurchase $15 billion of stock, which could retire about 20% of its outstanding shares in the coming years.

Meanwhile, Devon Energy (NYSE:DVN) has taken things even further. The company sold several assets, which has narrowed its focus on four key regions. That gave Devon Energy the cash to repurchase $4.4 billion of its stock so far, which is 24% of its shares outstanding. The company aims to buy back another $600 million by year-end, which could push its share total down by 30% from its peak. More repurchases are likely in the future since Devon now has a top-tier balance sheet and a business that's generating increasing free cash flow.

Taking matters into its own hands

Concho Resources' recent sell-off pushed its stock price into bargain territory in the company's view. As a result, it's selling assets so that it can repurchase shares. That will enable the company to immediately gobble up some of its discounted shares, which it hopes will create more value for its investors over the long term.