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. 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 (out of five)



$300 million


J.C. Penney (NYSE:JCP)


$400 million


LabCorp (NYSE:LH)


$500 million


Freddie Mac (NYSE:FRE)


$1 billion


YUM! Brands (NYSE:YUM)


$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 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.

Let's take a look at one company that's feeling the love of the CAPS community with a five-star rating. Motley Fool Stock Advisor recommendation LabCorp announced that it was going to buy back up to $500 million worth of the 122 million shares it has outstanding. At current prices, that would amount to approximately 5% of the diagnostic testing company's total.

Shares of LabCorp dropped 10.5% at the beginning of March after the announcement that Aetna (NYSE:AET) had dropped the testing company; the move was expected to affect earnings by as much as $0.04 to $0.12 per share. It was certainly a hard blow for the company, particularly after it had nosed out rival Quest Diagnostics (NYSE:DGX) for the exclusive business of UnitedHealth Group. The shares have recovered about half of the lost ground since then. Some suspect that the health insurer is willing to penalize doctors who send patients for out-of-network testing to wring as much value as possible out of its arrangement with LabCorp.

Here's what investors on CAPS are saying:

  • TheStillMan notes that LabCorp is "one of the two major consolidators of medical testing in the U.S. Medical outsourcing is on the rise and will increase dramatically in the future," while jlawler195 says that as "we get older we need more lab tests and this company does it as well as anyone."
  • All-Star CAPS player grow76 adds, "Every time you apply for a job, chances are you'll be sent to LabCorp for a drug test---also responsible for processing all sorts of tests run by your doc."
  • With that in mind, industry research and analyst firm Netscribes says that as the second-largest testing company, LabCorp will receive positive influence from market demographics. "With diagnostic testing accounting for an estimated 2%-3% of overall healthcare spending, but influencing nearly 60%-70% of healthcare decisions, the laboratory services industry and LabCorp are both well positioned for continued growth."

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.

Foolish fallout
You've seen what the companies have said. You've read 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 tens of thousands of your fellow investors. Click here to sign up today.

LabCorp is a recommendation of Motley Fool Stock Advisor.

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.