Stock buybacks are generally considered a bullish signal on Wall Street. They often 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 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 74,000-strong investor 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) |
|---|---|---|---|
|
Titanium Metals |
11/12/2007 |
$100 million |
***** |
|
Feldman Mall Properties |
11/12/2007 |
3 million shares |
* |
|
Allegheny Technologies |
11/13/2007 |
$500 million |
***** |
|
Prudential Financial |
11/13/2007 |
$3.5 billion |
**** |
|
Waste Management |
11/13/2007 |
$300 million |
***** |
|
Service Corp International |
11/14/2007 |
$250 million |
*** |
|
American International Group |
11/15/2007 |
$8 billion |
*** |
|
Broadcom |
11/15/2007 |
$1 billion |
*** |
|
Cisco |
11/16/2007 |
$10 billion |
***** |
|
Agilent |
11/16/2007 |
$2 billion |
*** |
The CAPS advantage
Investors at CAPS seem optimistic about this group of companies announcing buyback programs, since half have garnered top four- or five-star ratings.
Cisco remains the industry leader in Internet plumbing, and it's always prodigiously produced cash flow. Yet while the network-products maker beat analyst forecasts by a penny, a weak outlook -- particularly in the enterprise area -- has some observers concerned that its valuation may have peaked. Shares have fallen by roughly 15% since. That hasn't shaken CAPS investors' confidence in the company, though. For example, All-Star lowellfield thinks the forecast fears were a little overdone:
Got hammered on the theory that soft spending from financial customers foretells massive slowdown in worldwide internet boom. Might be a little more cautious on IT spending but theres still the AT&T, Verizon, Cable competition to sort out, and more people in other countries craving the internets.
Another CAPS All-Star, pasky2112, concurs, adding that it's the stock that has been hurt, not the company:
Strong ROW growth. Cycle is HOT! Chambers statement about a decrease in sales to financials and automakers was taken and overblown. The street panicked and booked profits (why not?) However, this company will grow for the rest of the tech cycle and I see it in the 40's in 6-9 months. Broken stock but NOT a broken company!
While some think business might be soft for Cisco going forward, few doubt the company's underlying strength. Of the 4,800 CAPS investors who've rated Cisco, 96% believe it will outperform the market.
Foolish fallout
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