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Turnaround situations have a reputation for delivering spectacular returns, if and when the company can actually turn things around. Once a company has lost its way, it is very difficult to regain market share or become profitable even if new management is at the helm. We discussed this briefly in a Twitter thread after an insider purchase at General Electric (GE) by Larry Culp. Despite his excellent management of Danaher (DHR) from 2000 to 2014, Culp has had a hard time turning around a behemoth like GE in the nearly 3.5 years since he took the top job at GE.
When reviewing the list of stocks that made the list for our Buyback Wednesdays article this week, I was struck by the fact that the top three were all turnaround stories. Genworth Financial (GNW) went through a grueling four and a half year period where China Oceanwide attempted to acquire the company and the acquisition finally failed in April 2021. The acquisition was originally announced in October 2016. Despite receiving all necessary U.S. and China regulatory approvals and extending the deal 17 times, Genworth finally pulled out of the deal when China Oceanwide had trouble financing the deal during the pandemic.
The stock, which is down about 10% over the last year, has been treading water since deal termination. The $350 million buyback the company announced is the first time in thirteen years Genworth is returning capital to shareholders after suspending its dividend in 2008. Debt maturities are spread out with $200 million due in February 2024, $300 million due in June 2034 and shockingly $600 million due in November 2066.
The company that stood out the most in the group today is Ecovyst (ECVT), a company that provides chemicals like sulphuric acid to the refining industry and catalysts for the production of stiff plastics. The company formerly known as PQ Group Holdings, has been going through a turnaround process that includes selling a division to The Carlyle Group for $1.1 billion last year, using the proceeds to pay down debt and pay a special dividend to shareholders, and more recently replacing its CEO by promoting an internal candidate. The company also appointed a new Chairman of the Board and two new independent directors.
Ecovyst had been exploring an outright sale of the company earlier this year. Given the current favorable environment for the energy industry, it is not surprising to see Ecovyst reported a 42% increase in Q1 2022 revenue to $180 million and adjusted EBITDA also increased 40% to $59 million. The up to $450 million buyback the company announced represents 28.5% of the company’s shares outstanding and will be executed over a period of four years.
Welcome to edition 5 of Buyback Wednesdays, a new weekly series of articles we launched on Inside Arbitrage a few weeks ago to track 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. Ecovyst Inc. (ECVT): $9.72
On April 28, 2022, the Board of Directors of this specialty catalysts and chemicals provider approved a new share repurchase program authorizing the company to repurchase up to $450 million of its class A common stock equal to nearly 28.5% of the common shares of the company.
| Market Cap: $1.4B | Avg. Daily Volume (30 days): 324,022 | Revenue (TTM): $664.30M |
| Net Income Margin (TTM): -5.94% | ROE (TTM): 1.27% | Net Debt: $781.2M |
| P/E: N/A | Forward P/E: 12.63 | EV/EBIDTA (TTM): 13.76 |
2. Genworth Financial, Inc. (GNW) : $4
On May 2, 2022, the Board of Directors of this insurance provider approved a new share repurchase program authorizing the company to repurchase up to $350 million of its class A common stock equal to nearly 18.5% of the common shares of the company.
| Market Cap: $1.89B | Avg. Daily Volume (30 days): 3,482,077 | Revenue (TTM): $7.83B |
| Net Income Margin (TTM): 11.54% | ROE (TTM): 5.72% | Net Cash: $760M |
| P/E: 2.16 | Forward P/E: N/A | EV/EBIDTA (TTM): 2.16 |
3. Medallion Financial Corp. (MFIN) : $8.65
On May 2, 2022, the Board of Directors of this finance company approved a new share repurchase program authorizing the company to repurchase up to $35 million of its class A common stock equal to nearly 17.13% of the common shares of the company.
| Market Cap: $210.73M | Avg. Daily Volume (30 days): 58,233 | Revenue (TTM): $191.50M |
| Net Income Margin (TTM): 28.26% | ROE (TTM): 17.46% | Net Debt: $1.29B |
| P/E: 3.61 | Forward P/E: N/A | EV/EBIDTA (TTM): 14.53 |
4. Hilltop Holdings Inc. (HTH) : $30.61
On May 2, 2022, the Board of Directors of this financial holding company approved a new share repurchase program authorizing the company to repurchase up to $400 million of its class A common stock equal to nearly 16.62% of the common shares of the company.
| Market Cap: $2.40B | Avg. Daily Volume (30 days): 636,912 | Revenue (TTM): $1.68B |
| Net Income Margin (TTM): 16.46% | ROE (TTM): 11.6% | Net Cash: $1.27B |
| P/E: 7.43 | Forward P/E: N/A | Price/Tang. Book: 1.11 |
5. Discover Financial Services (DFS): $115.56
On April 27, 2022, the Board of Directors of this credit cards and digital banking company approved a new share repurchase program authorizing the company to repurchase up to $4.2 billion of its class A common stock equal to nearly 13.9% of the common shares of the company.
| Market Cap: $31.83B | Avg. Daily Volume (30 days): 1,414,283 | Revenue (TTM): $11.46B |
| Net Income Margin (TTM): 44.5% | ROE (TTM): 39.85% | Net Debt $6.44B |
| P/E: 6.61 | Forward P/E: 7.94 | Price/Tang. Book: 2.68 |
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