Buyback Wednesdays – Texas Instruments Announces a $15 Billion Stock Buyback

Buyback activity edged down a little last week with 14 companies announcing buybacks. We saw several announcements that exceeded a billion dollars. The $5 billion buyback announcement by Johnson & Johnson (JNJ) and the $10 billion additional buyback by Comcast Corporation (CMCSA) were significant. This is the second $10 billion buyback Comcast has announced this year. The prior one was announced in January representing around 5% of its market cap at announcement. The cable operator has been consistently buying back its shares. In the last decade, the company has reduced its shares outstanding by about 15%. For Q2 2022 revenue increased 5.1% to $30 billion, adjusted EBITDA increased by 10% to $9.8 billion and adjusted EPS increased by 20% to $1.01 per share. Free cash flow exceeded net income in Q2 and came in at $3.89 billion. Despite the company’s speed advantage, it has competition from new entrants like SpaceX’s Starlink satellite internet service as well as strong competition on the content side. Comcast’s net debt of $92 billion also gives me pause even though it is well covered by the company’s strong cash flows.

The buyback that stood out last week was the $15 billion buyback announced by the semiconductor company, Texas Instruments (TXN). The buyback was announced on September 15 and represents around 10% of its market cap at announcement. This is in addition to $8.2 billion remaining under the previous authorization.

The company has a 32-year dividend history and has been raising dividends for almost 20 consecutive years. Its recent quarterly cash dividend increased 8% to $1.24 per share. The company has also been regularly buying back its shares and since 2004 TI has reduced its outstanding shares by a whopping 47%. This is clearly a very shareholder friendly company that has managed to perform well in a cyclical industry.

    Source: https://investor.ti.com/stock-information/stock-repurchases

Given the current favorable environment for the semiconductor industry, it is not surprising that TI reported strong second-quarter results with revenue growth of 14% year-over-year to $5.21 billion. About 62% of its revenue comes from the industrial and automotive sectors. Its chips are an essential component of Apple’s iPhone, and Apple accounts for around 9% of TI’s revenue.

EPS increased by 20% year over year to $2.45, beating the consensus of $2.12.  Moreover, earnings have grown 14.5% per year over the past 5 years. TI generated $1.8 billion in operating cash flow and held $8.4 billion in cash and equivalents as of June 30, 2022. Since 2004, free cash flow per share grew 12% compounded annually. With a strong balance sheet coupled with no debt and an EV/EBITDA under 15, a buyback announcement by the company makes sense. TI is also planning to set up a new factory in Texas that will be operational by 2025.

The semiconductor industry is a notoriously cyclical industry and while some investors had started to believe that constantly increasing demand for semiconductors removes the risk from cyclicality, we are starting to learn that that is not the case anymore. Companies flush with cash at the top of a cycle often tend to repurchase shares at exactly the moment they should be preserving capital for the inevitable down cycle. However looking at TI’s long history of capital allocation, this does not appear to be case for the company.

Welcome to edition 25 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. APA Corporation  (APA): $39.6

On September 14, 2022, the Board of Directors of this oil and gas extraction company approved an additional share repurchase program authorizing the company to repurchase up to 40 million shares of its class A common stock equal to nearly 12.3% of its market cap at announcement.

Market Cap: $12.93B Avg. Daily Volume (30 days): 8,273,061 Revenue (TTM): $11.17B
Net Income Margin (TTM): 27.56% ROE (TTM): 315.56%  Net Debt: $4.2B
P/E: 4.56 Forward P/E: 3.31 EV/EBIDTA (TTM): 2.73

2. Texas Instruments Incorporated (TXN): $166.06

On September 15, 2022, the Board of Directors of this semiconductor company approved an additional share repurchase program authorizing the company to repurchase up to $15 billion of its class A common stock equal to nearly 10% of its market cap at announcement.

Market Cap: $151.73B Avg. Daily Volume (30 days): 5,626,175 Revenue (TTM): $19.59B
Net Income Margin (TTM): 43.78% ROE (TTM): 67.95%  Net Cash: $1.14B
P/E: 18.08 Forward P/E: 18.48 EV/EBIDTA (TTM): 13.4

3. Playa Hotels & Resorts N.V. (PLYA): $6.52

On September 20, 2022, the Board of Directors of this resort owner and operator approved a new share repurchase program re-authorizing the company to repurchase up to $100 million of its class A common stock equal to nearly 9.4% of its market cap at the announcement.

Market Cap: $1.08B Avg. Daily Volume (30 days): 1,240,843 Revenue (TTM): $760.57M
Net Income Margin (TTM): 8.03% ROE (TTM): 9.03%  Net Debt: $766.36M
P/E: 16.68 Forward P/E: 9.5 EV/EBIDTA (TTM): 18.5

4. Arrow Electronics Inc. (ARW): $96.48

On September 15, 2022, the Board of Directors of this technology distributor approved an additional share repurchase program authorizing the company to repurchase up to $600 million of its class A common stock, equal to nearly 9.37% of its market cap at announcement.

Market Cap: $6.19B Avg. Daily Volume (30 days): 547,436 Revenue (TTM): $36.06B
Net Income Margin (TTM): 3.87% ROE (TTM): 26.35%  Net Debt: $3.26B
P/E: 4.81 Forward P/E: 4.9 EV/EBITDA: 4.45

5. Choice Hotels International, Inc. (CHH): $112.38

On September 14, 2022, the Board of Directors of this lodging franchisor approved an additional share repurchase program authorizing the company to repurchase up to 5 million shares of its class A common stock, representing nearly 9% of its market cap at announcement.

Market Cap: $6.27B Avg. Daily Volume (30 days): 498,481 Revenue (TTM): $1.23B
Net Income Margin (TTM): 28.72% ROE (TTM): 135.83%  Net Debt: $484.47M
P/E: 17.9 Forward P/E: 18.62 EV/EBIDTA (TTM): 12.2

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