The season of buybacks continues this week with a total of 38 companies announcing stock buybacks and 10 of those companies announcing buybacks that exceeded 10% of their market cap. We also saw a couple of buyback announcements by insurance companies that exceeded $1 billion but they did not make our list below because the buybacks as a percentage of their market cap were not large. Progressive (PGR) announced a $2.7 billion buyback representing 4.27% of its market cap at announcement and Chubb (CB) reported a $2.5 billion buyback representing 2.89% of its market cap at announcement.
The company that topped our list announced a buyback that intends to retire more than 30% of their shares outstanding over the next three years. Franchise Group (FRG) was created in 2019 through the merger of tax preparation company Liberty Tax Group and Buddy’s Home Furnishings. The company is the owner and operator of franchised and franchisable businesses and has been growing its stable of brands through acquisitions. FRG acquired The Vitamin Shoppe and Sears Outlet in 2019, American Freight (odd name for a mattress and furniture company) in 2020, and Sylvan Learning, Pet Supplies First and Badcock Home Furniture in 2021. It also divested its Liberty Tax business in 2021 for $249 million.
Nearly half of the company’s revenue and more than half of its EBITDA is generated by The Vitamin Shoppe and Badcock with the rest mostly made up of Pet Supplies Plus and American Freight. Sylvan and Buddy’s represent low single digits of revenue and EBITDA. All these acquisitions have left the company with a ton of debt and for a company with a market cap below $1.6 billion, it has net debt of $2.35 billion on its balance sheet. Which brings up the question of whether it makes sense to spend $500 million on a buyback instead of paying down debt in a rising interest rate environment or using capital for additional acquisitions that might become available at attractive prices if we tip into a recession.
The company has been growing rapidly and is expected to grow revenue 29% in 2022. Earnings per share are expected to grow to $5 in 2022 and $5.33 in 2023, giving the company a forward P/E of 7.36 and a forward EV/EBITDA of 8.50. The stock is cheap and could have triggered management to announce a buyback. Gross margin of over 41% and net income margin approaching 10% are respectable if not very exciting. Given its concentration in retail, the company will face some of the same headwinds other retailers have been facing on account of labor, materials and transportation inflation. I like the company enough to add it to my watch list to see how the company performs in the future.
Welcome to edition 8 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. 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 could be low-volume small-cap stocks with a market cap below $2 billion.
Top 5 Stock Buyback Announcements
1. Franchise Group, Inc. (FRG): $36.79
On May 18, 2022, the Board of Directors of the owner and operator of franchised and franchisable businesses, approved a new share repurchase program authorizing the company to repurchase up to $500 million of its class A common stock equal to nearly 31.4% of the common shares of the company.
| Market Cap: $1.48B | Avg. Daily Volume (30 days): 352,807 | Revenue (TTM): $3.77B |
| Net Income Margin (TTM): 9.61% | ROE (TTM): 38.29% | Net Debt: $2.35B |
| P/E: 7.09 | Forward P/E: 7.77 | EV/EBIDTA (TTM): 9.7 |
2. Covenant Logistics Group, Inc. (CVLG): $20.6
On May 18, 2022, the Board of Directors of this transportation and logistics service provider, approved a new share repurchase program authorizing the company to repurchase up to $75 million of its class A common stock equal to nearly 24.25% of the common shares of the company.
| Market Cap: $276.35M | Avg. Daily Volume (30 days): 100,688 | Revenue (TTM): $1.12B |
| Net Income Margin (TTM): 6.43% | ROE (TTM): 21.9% | Net Debt: $83.2M |
| P/E: 4.68 | Forward P/E: 4.69 | EV/EBIDTA (TTM): 3.13 |
3. Ocwen Financial Corporation (OCN): $25.24
On May 20, 2022, the Board of Directors of this financial services company, approved a new share repurchase program authorizing the company to repurchase up to $50 million of its class A common stock equal to nearly 23.4% of the common shares of the company.
| Market Cap: $239.77M | Avg. Daily Volume (30 days): 116,239 | Revenue (TTM): $1.07B |
| Net Income Margin (TTM): 6.3% | ROE (TTM): 13.88% | Net Debt: $10.7B |
| P/E: 3.31 | Forward P/E: N/A | EV/EBIDTA (TTM): 22.46 |
4. Lincoln Educational Services Corporation (LINC): $5.51
On May 24, 2022, the Board of Directors of this post-secondary education 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 20.7% of the common shares of the company.
| Market Cap: $138.21M | Avg. Daily Volume (30 days): 121,429 | Revenue (TTM): $339.89M |
| Net Income Margin (TTM): 8.97% | ROE (TTM): 24.65% | Net Debt: $25M |
| P/E: 5.75 | Forward P/E: 9.49 | EV/EBIDTA (TTM): 15.53 |
5. Eagle Materials Inc. (EXP): $124.96
On May 19, 2022, the Board of Directors of this producer and supplier of construction materials, approved an additional share repurchase program authorizing the company to repurchase up to $946.65 million of its class A common stock equal to nearly 18.98% of the common shares of the company.
| Market Cap: $4.79B | Avg. Daily Volume (30 days): 351,409 | Revenue (TTM): $1.86B |
| Net Income Margin (TTM): 20.1% | ROE (TTM): 30.03% | Net Debt: $920M |
| P/E: 14.03 | Forward P/E: 10.85 | EV/EBIDTA (TTM): 9.51 |
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