Welcome to edition 35 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week.
Buyback activity dropped so sharply last week due to the Thanksgiving holiday and fewer companies reporting earnings that instead of focusing on a specific company announcing a large buyback, we decided to shift gears and write more broadly about buybacks. Companies have increased their allocation to share repurchases in recent years because it is a tax efficient way to return capital to shareholders and when done correctly, can significantly enhance shareholder returns.
As mentioned in our first edition of Buyback Wednesdays, we wrote the following in a premium blog post more than four years ago when we first started tracking buybacks on Inside Arbitrage.
There has been a lot of academic research over the years that shows the superior performance of companies buying back their own stock. Recent research into the “uber cannibals”, defined as the top 5 companies buying back their own shares, by Mohnish Pabrai as discussed in the article Move Over Small Dogs Of The Dow, Here Come The Uber Cannibals, shows that the uber cannibals have outperformed the S&P 500 index by 6.3% annualized over a 26 year period. Not all buybacks are in the best interest of investors and we have all heard of companies like Citigroup (C) using capital to buy back shares right before the financial crisis. The company was subsequently forced to receive the biggest bailout of any American bank. On the other hand, we have also seen the masterful use of stock buybacks by some CEOs to generate outsized returns for their investors as discussed in the book The Outsiders by William Thorndike.
Cliff Asness of AQR has been a huge proponent of buybacks and in his 2018 article in the Journal of Portfolio Management titled Buyback Derangement Syndrome, he dispels several myths about buybacks. As he states in this CNBC interview (h/t Tobias Carlisle of The Acquirer’s Multiple), negativity around buybacks makes for good sound bites but is not grounded in sound reason.
The number of companies announcing buybacks has significantly increased in the past two years with this year being a banner year with over 1,000 companies announcing buybacks. U.S. companies are estimated to repurchase a record $1.25 trillion of their stock this year. Looking at announcement data from the Inside Arbitrage database, we have already crossed the $1 trillion threshold.
|Year||No. Of Buybacks Announced|
The graph below illustrates that the distribution of buybacks was not consistent across the last eight quarters. While buyback announcements, at $356 billion, were the highest in Q2 2022, buyback activity appears to be waning in the second half of 2022. A decline in the price of oil and big drops in the price of technology stocks, has dampened corporate America’s enthusiasm for buybacks.
Some of the biggest cannibals this year were large technology companies, with Apple (AAPL) and Alphabet (GOOG) topping the list. Oil companies that were flush with cash from rising oil prices were also big buyers. Among energy majors, TotalEnergies (TTE) announced a $7 billion share-buyback program for 2022 and Shell (SHEL) announced the commencement of a $4 billion share buyback, bringing the total repurchases for the year to $18.5 billion. Companies like Lockheed Martin (LMT) and Walmart (WMT) were in on the action as well.
Home builders like PulteGroup (PHM), NVR (NVR) and KB Home (KBH) as well as building product companies like Builders FirstSource (BLDR) and Fortune Brands Home & Security, Inc. (FBHS) also announced significant buybacks this year. This week, Builders FirstSource (BLDR) announced an additional $1 billion share repurchase program representing around 11% of its market cap at announcement. We wrote about home builders stepping up buybacks in edition 2 of Buyback Wednesdays.
Auto related companies also announced several buybacks this year. Advance Auto Parts (AAP) announced a $1 billion additional purchase in Q1 2022 and AutoNation (AN) announced $1 billion additional share repurchases in both Q2 2022 and Q3 2022. Penske Automotive Group (PAG) with a market cap of $8.95 billion also announced a buyback earlier this year.
Another trend that was noticeable was the large number of buyback announcements from regional banks in Q3 2022. We have also been seeing consistent insider buying in regional banks. Because of the small size of the insider purchases and modest buybacks, these usually tend to stay under the radar.
The biggest stock buyback announcements in dollar terms for 2022 consists of an eclectic mix of companies as outlined below.
Top 20 Buyback Announcements of 2022:
|Stock||Symbol||Announcement Date||Buyback Amount||Market Cap (at announcement)||Percent of Shares|
|Exxon Mobil Corporation||XOM||2022-04-29||$28B||$363B||7.68%|
|Alibaba Group Holding Limited||BABA||2022-11-17||$15B||$207B||7.24%|
|Texas Instruments Incorporated||TXN||2022-09-15||$15B||$149B||10.09%|
|The Home Depot, Inc.||HD||2022-08-18||$15B||$335B||4.48%|
|The Charles Schwab Corporation||SCHW||2022-07-27||$15B||$119B||12.65%|
|Cisco Systems, Inc.||CSCO||2022-02-16||$15B||$229B||6.56%|
|PayPal Holdings, Inc.||PYPL||2022-08-02||$15B||$104B||14.43%|
|Lockheed Martin Corporation||LMT||2022-10-18||$14B||$115B||12.18%|
|T-Mobile US, Inc.||TMUS||2022-09-08||$14B||$182B||7.70%|
|CVS Health Corporation||CVS||2022-11-17||$10B||$124B||8.04%|
|Norfolk Southern Corporation||NSC||2022-03-29||$10B||$68B||14.60%|
Buyback announcements are sometimes not followed by actual repurchases. It is important to understand if a company is actually buying back its stock, has announced buybacks to offset shareholder dilution from stock based compensation or is just trying to signal the market. The following five companies followed through on their repurchase announcements and in some instances retired large portions of their float.
The Inflation Reduction Act that goes into effect next year includes a 1% excise tax on share repurchase programs. This tax is tiny but certain companies decided to speed up their buybacks by entering into accelerated share repurchases (ASR). The following companies announced ASRs.
Companies that step up and buyback their own stock after a large decline in the overall market will be worth tracking in the coming months and we plan to do so every week in future editions of Buyback Wednesdays.
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