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Buyback activity dropped significantly last week with only 5 companies announcing their buybacks. The announcement that topped our list was a $500 million buyback by Medical Properties Trust (MPW), representing around 8% of its market cap at announcement. MPW is a healthcare triple net lease REIT that has lost more than half its value since the start of this year. The stock appears cheap trading at a forward Price/AFFO of 7.37 and its dividend yield is 11.16%, which is significantly above its four-year average of 5.68%. We discussed REIT yields in a post titled REIT Insiders Are Prematurely Bullish – A Potential 37% Drop Looms Ahead yesterday. MPW has a market cap of $6.07 billion and an enterprise value of $15.96 billion.
Our focus for this week is the $500 million share buyback announcement by Fair Isaac Corporation (FICO) which represents around 5% of its market cap at announcement. The company has been consistently buying back its shares with around 15% of its outstanding stock bought back since 2018. In the third quarter, the company repurchased 735,000 shares at an average price of $384 per share. At the end of June, FICO had about $119 million remaining on the current authorization and continues to view share repurchases as an attractive use of cash.
The company reported its FQ3 2022 financial results on August 3, 2022, beating expected revenue and EPS estimates because of rising demand for its scoring and software solutions. Total revenue for the third quarter was $349 million, an increase of 3% over the prior year. This quarter, 84% of total company revenues came from the Americas region, Asia Pacific region generated 5% and the remaining 11% was from Europe, Middle East, and Africa. FQ3 EPS of $4.47 beat estimates by $0.49. The company has beaten EPS estimates for the last eight quarters in a row. In the past year, FICO’s stock price has risen nearly 2% bucking general market trends and a drop of 17.71% in the S&P 500. Strong profitability through net income margin of 27% and gross profit margin of 78% helps partially explain the strength in the stock. The stock trades at a forward P/E of 21.51 and a forward EV/EBITDA of 17.65.
Free cash flow for the quarter was $115 million, up 16% from the same period last year. For the trailing 12-month period, free cash flow was $449 million. At the end of the quarter, the company had $155 million in cash and investments. Net debt (excluding capital leases) at quarter end was $1.68 billion.
Considering the big drop in mortgage applications and the potential for a recession in the near future, it is possible that FICO might see a decline in its business. The debt on the company’s balance sheet makes me wonder if buying back stock is the best course of action at this point in time. It might make more sense to use excess capital to pay off some debt in a rising interest rate environment.
Welcome to edition 28 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. Medical Properties Trust, Inc. (MPW): $10.98
On October 10, 2022, the Board of Directors of this healthcare real estate investment trust (REIT) approved a new share repurchase program authorizing the company to repurchase up to $500 million of its class A common stock equal to nearly 8% of its market cap at announcement.
| Market Cap: $6.22B | Avg. Daily Volume (30 days): 17,882,903 | Revenue (TTM): $1.65B |
| Net Income Margin (TTM): 72.83% | ROE (TTM): 14.05% | Net Debt: $9.88B |
| P/E: 5.2 | Forward P/E: 5.57 | EV/EBIDTA (TTM): 11.04 |
2. Centerra Gold Inc. (CGAU): $4.66
On October 11, 2022, the Board of Directors of this gold mining company approved a new share repurchase program authorizing the company to repurchase up to 15,610,813 shares of its class A common stock equal to nearly 7% of its market cap at announcement.
| Market Cap: $1.02B | Avg. Daily Volume (30 days): 223,434 | Revenue (TTM): $934.52M |
| Net Income Margin (TTM): 41.65% | ROE (TTM): 20.06% | Net Cash: $712M |
| P/E: 3.81 | Forward P/E: 7.75 | EV/EBIDTA (TTM): 1.04 |
3. Sachem Capital Corp. (SACH): $3.71
On October 7, 2022, the Board of Directors of this real estate finance company approved a new share repurchase program authorizing the company to repurchase up to $7.5 million of its class A common stock, representing nearly 5.3% of its market cap at announcement.
| Market Cap: $145.25M | Avg. Daily Volume (30 days): 300,076 | Revenue (TTM): $26.29M |
| Net Income Margin (TTM): 69.17% | ROE (TTM): 10.35% | Net Debt: $274.63M |
| P/E: 8.07 | Forward P/E: 6.87 | EV/EBIDTA (TTM): – |
4. Fair Isaac Corporation (FICO): $405.73
On October 11, 2022, the Board of Directors of this software solutions provider approved a new share repurchase program authorizing the company to repurchase up to $500 million of its class A common stock equal to nearly 5% of its market cap at the announcement.
| Market Cap: $10.01B | Avg. Daily Volume (30 days): 249,999 | Revenue (TTM): $1.36B |
| Net Income Margin (TTM): 27.04%% | ROE (TTM): N/A | Net Debt: $1.68B |
| P/E: 30.32 | Forward P/E: 21.51 | EV/EBIDTA (TTM): 21.46 |
5. Madison Square Garden Sports Corp. (MSGS): $154.06
On October 6, 2022, the Board of Directors of this sports company approved an accelerated share repurchase program authorizing the company to repurchase up to $75 million of its class A common stock, equal to nearly 2.2% of its market cap at announcement.
| Market Cap: $3.70B | Avg. Daily Volume (30 days): 166,604 | Revenue (TTM): $821.35M |
| Net Income Margin (TTM): 6.23% | ROE (TTM): N/A | Net Debt: $902.27M |
| P/E: 72.74 | Forward P/E: N/A | EV/EBITDA: 50.68 |
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