Photo credit: Flickr/Francisco Diez
The world's top three oil-field service companies -- Halliburton (HAL -0.75%), Schlumberger (SLB -0.39%), and Baker Hughes (BHI) -- are buying back stock hand over fist. The trio combined to buy back nearly $1.6 billion in stock during the last quarter alone. While many stock buybacks are a waste of shareholder capital, these three look to be meaningfully creating value for investors. Let's look at which of the three did the best job buying back stock last quarter.
Buyback overview
Schlumberger led the way, repurchasing $899 million in stock at an average price of $90.31 per share. This is part of a $10 billion buyback program the company's board approved last July. To date, Schlumberger has repurchased $2.6 billion under the program. Schlumberger originally planned to complete the entire $10 billion repurchase plan in five years, but its surging cash flow should enable the company to finish buying back stock in half that time.
Halliburton was No. 2 in stock buybacks last quarter. It repurchased 9 million shares for a total of $500 million, or an average of $55.56 per share. Halliburton has been carrying out a $10 billion buyback plan since 2006. To date, it has bought back 197 million shares at a total cost of $8.1 billion, giving it $1.2 billion left under the current phase of the program.
Finally, Baker Hughes bought back $200 million worth of stock, or 3.4 million shares at an average price of $62.50 per share. Baker Hughes now has $1.45 billion left on its share buyback plan.
Capital well spent
Previous buybacks, combined with earnings momentum, have enabled all three companies to turn in solid stock performances so far this year, as the following chart shows.
The underlying business performance of all three oil-field service giants was strong last quarter, as all three beat earnings estimates. The improving service market boosted each stock, which meant these companies had to be disciplined to avoid overpaying just to buy back shares. As the following chart shows, all three did a fairly decent job not chasing their stock higher -- each company bought back its stock closer to the quarterly low.
|
Company |
Shares Repurchased |
Buyback Total |
Share price 12/31 |
Average Buyback Price |
Share price 4/21 |
Return on Buyback |
|---|---|---|---|---|---|---|
|
Schlumberger |
9,954,601 |
$899,000,000.00 |
$90.11 |
$90.31 |
$101.59 |
12.49% |
|
Halliburton |
9,000,000 |
$500,000,000.00 |
$50.75 |
$55.56 |
$63.39 |
14.10% |
|
Baker Hughes |
3,400,000 |
$200,000,000.00 |
$55.26 |
$58.82 |
$69.88 |
18.80% |
Source: Company press releases and author's calculations.
Investor takeaway
Baker Hughes investors have enjoyed a much higher return on its buyback than Schlumberger and Halliburton. The company bought back its stock for what now amounts to a nearly 19% discount to current pricing. In addition, Baker Hughes' buyback actually resulted in about a half a penny extra in additional diluted per share earnings on the quarter, while the buybacks of both Halliburton and Schlumberger resulted in minuscule accretions of one-tenth of a penny per share. Baker Hughes clearly had the best buyback of the group for the quarter.
