Holding 5 More Accountable

Investors like it when a company whose shares they own announces a stock buyback program. Whether it's a new program or an expansion of an existing plan, stocks of companies often get bid up when they announce share-repurchase programs.

In our "Shrink!" column, we track companies that announce share repurchase programs, then see what our Motley Fool CAPS community thinks of them. If companies are bullish about their own prospects, and the smartest investors in Fooldom concur, that ought to get your attention.

Background on buybacks
We're tracking buyback programs because they can be a powerful driver to earnings-per-share growth. Suppose that a company with $1 million in earnings has 1 million shares outstanding and EPS of $1. If it buys back 250,000 shares, leaving 750,000 shares outstanding -- and total profits remain $1 million -- its new EPS will be $1.33, or 1 million divided by 750,000. Thus, the company increases its EPS by 33% without doing anything more than buying back its shares. When we couple that with increased profitability, EPS can really move up in a hurry.

By itself, tracking buybacks can give you some good investments. But if you combine that knowledge with the opinions of 25,000 CAPS players, you might be able to identify truly outstanding potential investments.

Follow through
Today, we're checking whether companies that have announced share-buyback programs are following through on their promises. Merely announcing a buyback doesn't obligate a company to make any purchases.

Companies may fail to follow up for several reasons -- some good, some bad. Some companies know that the markets like a buyback announcement, and sometimes, they'll make one just to prop up the price of their stock. That would obviously be one of the bad reasons.

Other times, after an announcement, the share price rises, and management no longer believes that buying back stock is the best place for its money. The stock is no longer undervalued, so execs wouldn't be getting the best return on their money. That would be a good reason not to buy back shares.

Here's a list of companies that announced buyback programs, and what's happened since. We've also checked in with Motley Fool CAPS to see how investors feel.

While it looks as though most companies are starting to follow through on their commitment, we also see that most have enjoyed stock-price appreciation, too. It could be that their stocks are just no longer attractively priced. Clear Channel in particular saw its stock rise by more than 23% since it announced the buyback program, on the strength of a buyout offer by a private-equity firm. Its one-star rating over at CAPS, though, may signal a coming opportunity for management to buy back shares even more cheaply, if the deal doesn't go through.

Here's what CAPS players are saying about Clear Channel and the others.

Business research and analyst firm NetscribeMedia says Clear Channel "has had a tough year in 2006, with a soft advertising market and increased competition from satellite radio, mp3 players and Ipods. With both Sirius and XM Radio entering into partnerships with major car manufacturers in America, it looks like terrestrial radio will take a backseat in this year ... nothing concrete has been announced in terms of a clear strategy to indicate that the company will beat the tough market conditions and competition in 2007."

DfenceCtr, who says he used to work for ITT, didn't mince words when it came to his former employer: "It is [a poorly] managed company, at least on the defense side. It definitely favors quantity over quality. With the war in Iraq coming to a forced close they will be losing their highly lucrative Iraq contracts, TAC-SWA being one of them. Maybe the other industries will absorb these losses, but I doubt it."

On the other hand, jpayne40 and iambigred both feel it's a "solid manufacturing company" with "solid management."

Foolish final thoughts
We've seen the results so far, and most of the companies have either followed through or have found better uses for their money, considering their rising share price. Maybe not all of them, though. We've also seen how the best CAPS players have weighed on some of these stocks. Now it's your turn.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Biogen is a Stock Advisor pick. XM is a former Rule Breakers pick. The Motley Fool has a disclosure policy.