Buyback Wednesdays – Another $3 Billion Share Repurchase Authorized by Moderna

Long subject to criticism, stock buybacks came under attack once again when the new Inflation Reduction Act of 2022 imposed a 1% excise tax on stock repurchases for publicly traded companies. While it is only a 1% tax and unlikely to change behavior of companies in any significant way, I am concerned that we are heading down a slippery slope with ad hoc taxes. This decision did not take the wind out of the sails of buyback announcements.

A total of 23 companies announced buybacks this week. The two companies that managed to make it to the top of our list are H&R Block, Inc. (HRB) and EuroDry Ltd (EDRY) announcing a $1.25 billion and a 10 million stock buyback respectively, representing around 20%  and  19% of their market caps at announcement. Moderna (MRNA) announced its second $3 billion buyback this year. It is fascinating to see how the two biggest beneficiaries of COVID-19 vaccines, Moderna and Pfizer, have take completely different approaches to capital allocation. While Moderna is going the buyback route, Pfizer (PFE) has been using the cash bonanza to scoop up several companies to strengthen its pipeline.

The buyback that caught my attention this week was a 10 million share buyback announcement by Cannae Holdings, Inc. (CNNE), representing nearly 12% of its market cap at announcement. Cannae Holdings was the subject of our April 2022 mid-month update and is in our model portfolio. An excerpt from that update is given below,

Cannae is an interesting holding company with a leadership team led by Bill Foley who successfully grew 3 major public companies including Fidelity National Financial (FNF), Fidelity National Information Services (FIS) and Black Knight (BKI). Bill Foley acquired Fidelity National Financial for $3 million in 1984, acquired Chicago Title Insurance Company in 2000 and made FNF the largest title insurance company in the United States. We wrote about FNF in the February 2021 Special Situations Newsletter and it is currently a position in our model portfolio. This article does an excellent job of articulating how Bill Foley built several multi-billion dollar businesses and generated one of the best long-term investing track records.

Analyzing SOTP opportunities can be time consuming as you have to determine the various components, what they might be worth in public or private markets and ascertain the likelihood of unlocking value through spin-offs or sales. Even if management were to sell a division, are they likely to be good stewards of that capital or send the proceeds to shareholders as a special dividend. Cannae Holdings (CNNE) not only outlined what the sum-of-the-parts of its holdings works out to in an February 2022 investor presentation but also provided an update as of March 31, 2022 that shows that the company was trading at an astounding 42% discount to its net asset value (NAV).

Given the discount to NAV, it is not surprising that the company is buying back its stock and at the same time insiders were also buying the stock earlier this year.

Welcome to edition 19 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. H&R Block, Inc.  (HRB): $39.44

On August 09, 2022, the Board of Directors of this income tax return services provider approved a new share repurchase program authorizing the company to repurchase up to $1.25 billion of its class A common stock equal to nearly 20% of its market cap at announcement.

Market Cap: $6.42B Avg. Daily Volume (30 days): 1,541,456 Revenue (TTM): $2.67B
Net Income Margin (TTM): 16.06% ROE (TTM): N/A  Net Debt: $1.34B
P/E: 12.81 Forward P/E: 10.76 EV/EBIDTA (TTM): 9.62

2. EuroDry Ltd (EDRY): $18.4

On August 08, 2022, the Board of Directors of this ocean-going transportation services provider approved a new share repurchase program authorizing the company to repurchase up to 10 million of its class A common stock equal to nearly 19% of its market cap at announcement.

Market Cap: $52.85M Avg. Daily Volume (30 days): 31,677 Revenue (TTM): $74.15M
Net Income Margin (TTM): 55% ROE (TTM): 59.21%  Net Debt: $63.53M
P/E: 1.08 Forward P/E: N/A EV/EBIDTA (TTM): 2.13

3.  Cannae Holdings, Inc. (CNNE): $22.84

On August 05, 2022, the Board of Directors of this principal investment firm approved a new share repurchase program authorizing the company to repurchase up to $232 million of its class A common stock, representing nearly 11.8% of its market cap at announcement.

Market Cap: $1.91B Avg. Daily Volume (30 days): 421,323 Revenue (TTM): $737.70M
Net Income Margin (TTM): -40.87% ROE (TTM): -9.16%  Net Debt: $95M
P/E: N/A Forward P/E: N/A EV/EBIDTA (TTM): -15.06

4. Vistra Corp. (VST): $24.79

On August 05, 2022, the Board of Directors of this retail electricity and power generation company approved an additional share repurchase program authorizing the company to repurchase up to $1.25 billion of its class A common stock, equal to nearly 11.8% of its market cap at announcement.

Market Cap: $10.30B Avg. Daily Volume (30 days): 3,985,124 Revenue (TTM): $11.02B
Net Income Margin (TTM): -8.33% ROE (TTM): -15.71%  Net Debt: $10.45B
P/E: 30.75 Forward P/E: 14.6 EV/EBIDTA (TTM): 21.39

5. Cedar Fair, L.P. (FUN): $42.8

On August 03, 2022, the Board of Directors of this regional amusement-resort operator approved a new share repurchase program authorizing the company to repurchase up to $250 million of its class A common stock equal to nearly 11% of its market cap at announcement.

Market Cap: $2.42B Avg. Daily Volume (30 days): 488,207 Revenue (TTM): $1.71B
Net Income Margin (TTM): 4.85% ROE (TTM): N/A  Net Debt: $2.4B
P/E: 28.95 Forward P/E: 19.01 EV/EBIDTA (TTM): 9.93

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Voluntary Disclosure: I hold long positions in Pfizer (PFE) and Cannae Holdings (CNNE).

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