Stock buybacks are generally considered a bullish signal on Wall Street. They announce management's belief that its stock is cheap, and that investing in itself will yield its best return on investment. Like dividends, buybacks also let companies return capital to shareholders.

How buybacks work
Done right, a share repurchase 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 EPS of $1.00. 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.

Buybacks can help companies boost their earnings per share without any new profit growth. But if you couple that power with actual expanding profits, you get an explosive combination of earnings-per-share growth.

Not all stock buybacks are created equal; sometimes there are nefarious reasons or bad times for a company to buy back its own shares. However, investors generally consider buybacks a sign from management of better times ahead.

Here's a list of some of the latest companies to announce share repurchase programs.


Buyback Announcement Date

Amount of Buyback

CAPS Rating

Waste Management (NYSE:WMI)


$600 million


Estee Lauder (NYSE:EL)


$750 million


Leucadia National (NYSE:LUK)


12 million shares


American Eagle Outfitters (NYSE:AEO)


7 million shares


National Semiconductor (NYSE:NSM)


$500 million


Source: company press releases. CAPS ratings courtesy of Motley Fool CAPS.

Are these companies right? Was now a good time to buy back company stock? To see what investors think, we turn to Motley Fool CAPS.

The CAPS advantage
Every day, tens of thousands of investors rank whether thousands of stocks will outperform or underperform the market. CAPS, the Fool's collective intelligence service, takes those ratings from professional and amateur investors alike, overweights the most successful and accurate opinions, and assigns each company a CAPS rating from one to five stars. If companies announce stock buybacks, and CAPS' top investors endorse their prospects for the future, Fools should take notice.

Waste Management
The garbage hauler expanded its buyback to include an additional $600 million worth of stock. It is now authorized to repurchase a total of $1.8 billion worth of shares. In the first two months of 2007, it has thus far repurchased $320 million worth. It currently has about 533 million shares outstanding.

Estee Lauder
The fragrance maker will buy back 16 million shares, worth about $750 million, from Bank of America (NYSE:BAC), which has agreed to buy an additional, equal number of shares over the next few months. Estee Lauder has approximately 206 million shares currently outstanding.

Leucadia National
The diversified holding company increased its authorized repurchase quantity to 12 million shares. It currently has about 216 million shares outstanding.

American Eagle Outfitters
The teen retailer announced plans to repurchase an additional 7 million shares under its current buyback program. During the fourth quarter, it bought back 2.3 million shares; it repurchased a total of 5.3 million shares over the course of 2006. It has about 223 million shares outstanding.

National Semiconductor
The computer chip maker said it was allotting an additional $500 million for its buyback program. In the fourth quarter, it bought back $141 million worth of shares, leaving just $50 million left under the current plan. National Semi currently has approximately 287 million shares outstanding.

Tracking their commitment
Later on, we'll follow up on these companies to see whether they've followed through on their announcements. A company's declaration that it will repurchase its stock doesn't obligate it to follow through. Sometimes, companies will announce a share buyback just to prop up the stock price. That's one of those nefarious reasons we mentioned earlier -- hence our continuing scrutiny of these firms' repurchase promises.

You've seen what the companies have said. You've seen what the CAPS players think. Now it's time to add your voice. Motley Fool CAPS is a completely free, fun service where you can pit your intellect against tends of thousands of your fellow investors. Sign up today.

American Eagle Outfitters is a recommendation of Motley Fool Stock Advisor. Bank of America is an Income Investor choice.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.