Welcome to edition 2 of Buyback Wednesdays, a new weekly series of articles we launched on Inside Arbitrage last week to track the top stock buyback announcements during the prior week. We have been tweeting about buybacks for several months and decided to start writing about them in a weekly article to provide more context.
A home builder topped the list of buybacks this week with KB Home announcing the authorization of a $300 million stock repurchase that represented nearly 11% of its market cap at announcement. This follows a $1 billion additional buyback announced on February 1, 2022 by PulteGroup (PHM) representing 7.4% of the company’s market cap at announcement and a $500 million buyback by NVR (NVR) on February 16, 2022, which is a continuation of its repurchase program that began in 1994. It is not surprising that NVR has the best return on equity and trades at a premium compared to its peer group.
The entire complex of housing related companies, whether it is home builders, mortgage originators or building products companies like Builders FirstSource (BLDR), have been trading at very low valuations and most home builders sport single digit P/E ratios. Having watched how this cyclical industry performed during and after the Great Recession, investors have been wary about owning these companies near their perceived cyclical peaks. The companies and their insiders don’t seem to have the same qualms and have been buying stock.
Home Builders Valuations (click to enlarge, source: Seeking Alpha)
When we launched this new series last week, we discussed a net-net stock that made the list. A net-net is a company where its market cap is less than current assets minus total liabilities. Another company that made the buyback list this week happens to be a net-net. China Automotive Systems, Inc. (CAAS) is an automotive parts manufacturer with a market cap of just $90 million. The company has $501 million in current assets including $135.5 million in cash and short-term investments. Inventory has been rising steadily over the years and accounts for another $116.5 million of those current assets. Total liabilities tally up to $379.3 million, making CAAS a net-net. All the standard risks associated with a Chinese company listed in the U.S. including infrequently audited financials, listing via a VIE structure, etc. apply.
The companies in the list below are the ones that announced the largest buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies are microcaps with a market cap below $300 million and others are low volume small cap stocks with a market cap below $2 billion.
Top 5 Stock Buyback Announcements
1. KB Home (KBH): $32.16
On April 7, 2022, the Board of Directors of this home builder approved a new share repurchase program authorizing the company to repurchase up to $300 million of its class A common stock equal to nearly 11% of the common shares of the company.
| Market Cap: $2.79B | Avg. Daily Volume (30 days): 4,682,686 | Revenue (TTM): $5.98B |
| Net Income Margin (TTM): 10.06% | ROE (TTM): 20.47% | Net Debt: $1.69B |
| P/E: 4.87 | Forward P/E: 3.11 | EV/EBIDTA (TTM): 5.75 |
2. H.B. Fuller Company (FUL): $66.53
On April 7, 2022, the Board of Directors of the chemical manufacturer approved a new share repurchase program authorizing the company to repurchase up to $300 million of its class A common stock equal to 8.4% of the common shares of the company.
| Market Cap: $3.57B | Avg. Daily Volume (30 days): 471,649 | Revenue (TTM): $3.41B |
| Net Income Margin (TTM): 4.98% | ROE (TTM): 11.01% | Net Debt: $1.87B |
| P/E: 21.69 | Forward P/E: 15.9 | EV/EBIDTA (TTM): 12.46 |
3. North American Construction Group Ltd. (NOA): $14.48
On April 6, 2022, the Board of Directors of heavy construction and mining service provider approved a new share repurchase program authorizing the company to repurchase up to $30 million of its class A common stock equal to nearly 7.4% of the common shares of the company.
| Market Cap: $443.74M | Avg. Daily Volume (30 days): 48,886 | Revenue (TTM): $517.3M |
| Net Income Margin (TTM): 7.86% | ROE (TTM): 19.51% | Net Debt: $299.42M |
| P/E: 11.34 | Forward P/E: 7.94 | EV/EBIDTA (TTM): 6.06 |
4. China Automotive Systems, Inc. (CAAS): $2.99
On April 11, 2022, the Board of Directors of this automotive parts retailer approved a new share repurchase program authorizing the company to repurchase up to $5 million of its class A common stock equal to nearly 5.4% of the common shares of the company.
| Market Cap: $90.09M | Avg. Daily Volume (30 days): 36,624 | Revenue (TTM): $497.99M |
| Net Income Margin (TTM): 2.22% | ROE (TTM): 3.26% | Net Cash: $101M |
| P/E: 7.76 | Forward P/E: 8.47 | EV/EBIDTA (TTM): 0.66 |
5. HarborOne Bancorp, Inc. (HONE): $13.41
On April 12, 2022, the Board of Directors of this bank holding company approved a new share repurchase program authorizing the company to repurchase up to $33.88 million of its class A common stock equal to nearly 5% of the common shares of the company.
| Market Cap: $692.47M | Avg. Daily Volume (30 days): 256,267 | Revenue (TTM): $239.31M |
| Net Income Margin (TTM): 24.45% | ROE (TTM): 8.51% | Net Cash: $79.2M |
| P/E: 11.96 | Forward P/E: 16.53 | Price/Tang. Book : 1.08 |
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Voluntary Disclosure: I hold a long position in PulteGroup (PHM)
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