Buyback Wednesdays – Electronic Arts Announces Massive $2.6 Billion Buyback

As we approach the end of earnings season, buyback announcement also slowed down with 15 new announcements during the last week. Two tiny microcap companies topped the list with buybacks representing 45% and 15.2% of their market caps at announcement. Both are unfortunately money losing companies and one of them, Exela Technologies (XELA), also happens to have a highly leveraged balance sheet.

Gaming company Electronic Arts Inc. (EA) announced a massive $2.6 billion buyback representing more than 7% of its market cap at announcement. The company received a pandemic related boost and we are yet to see signs of a significant slowdown in either revenue or earnings now that the world appears to be getting back to normal. Revenue growth is expected to moderate to 15.59% in fiscal 2023 ending March 2023 and the company is expected to earn $7.19 a share, giving it a forward P/E of 18.78.

Competitor Activision Blizzard (ATVI) is in the process of getting acquired by Microsoft (MSFT) in a $95 per share all cash deal.  While the spread on that deal has narrowed a little to 17.4%, it is still unusually large and reflects regulatory concerns with the deal. It was interesting to note that by the end of Q2 2022, Berkshire Hathaway had bumped up its stake in Activision Blizzard from 64.3 million shares to 68.4 million shares. Warren Buffett, who sometimes participates in large merger arbitrage deals, appears to have increased confidence in this one.

Another interesting buyback announcement was Westlake Corporation (WLK) announcing an additional $500 million share buyback representing around 4% of its market cap. Westlake manufactures and supplies petrochemicals, polymers and fabricated building products worldwide to various consumer and industrial markets. Competitor Olin Corporation (OLN) also announced a new $2 billion buyback announcement representing around 27% of its market cap at announcement on July 28, 2022. We discussed the company in our Buyback Wednesdays post two weeks ago.

Westlake reported record-breaking quarterly results in Q2 2022, with sales of $4.5 billion. It reported EBITDA of $1.46 billion, an increase of $524 million compared to Q2 2021 and record net income of $858 million compared to $522 million in Q2 2021. EPS for Q2 2022 was $6.60 and beats estimates by $0.61. WLK’s earnings growth over the past year (206.5%) exceeds its 5-year average (16.1% per year) and also that of the chemicals industry (19.9%).

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