Beyond the traditional benefits that stock buybacks offer, including reducing the size of the pie and a tax efficient way to return profits to shareholders, they also offer us insights into management’s capital allocation abilities. There are some companies that clearly should not be doing buybacks such as those with negative net income and negative free cash flows as well as those that are flush with cash at a cyclical peak. There are also companies where buybacks make a lot of sense because the stock is cheap and M&A opportunities scarce. These buybacks can provide a necessary catalyst to get the stock price moving in the right direction.
Our roundup of buybacks this week is an eclectic mix of large and small companies including ones that clearly should not be doing a buyback. A couple of significant announcements this week that did not make our top 5 list include announcements by managed healthcare company Centene Corporation (CNC) and TE Connectivity (TEL) of $3 billion and $1.5 billion respectively. These represent around 6.7% and 4% of their market caps at announcement. The company that stood out the most was KLA Corporation (KLAC) with its $6 billion buyback announcement. KLA is a global company with over 13,000 employees focused on process control related to semiconductor manufacturing.