Buyback Wednesdays – Triton International Boosts Buyback by an Additional $200 Million

  • December 14, 2022

When I first heard about a company announcing a $50 billion buyback last week, I was shocked. That amount of money exceeds the market cap of thousands of companies in the U.S. stock market. The company announcing this massive buyback was energy giant, Exxon Mobil (XOM), who expanded its share buyback program by up to $50 billion through 2024, representing around 8% of its market cap at announcement. In contrast, when Chevron (CVX) announced a buyback earlier this year, it was for just $5 billion.

The only three companies that come close to Exxon’s announcement are Apple (AAPL), Microsoft (MSFT) and Meta Platforms (META) with their $90 billion, $60 billion and $50 billion buyback announcements respectively. Microsoft and Meta announced their buybacks at the peak of the tech bubble late last year. Apple is in a class of its own having announced two consecutive $90 billion buybacks in April 2021 and April 2022. 

The other notable large announcements that did not make our top 5 list, include aerospace and defense company, Raytheon Technologies (RTX)  announcing a new $6 billion buyback on December 12, representing around 4% of its market cap at announcement. The new authorization replaces the company’s previous $6 billion program, approved on December 7, 2021. Kellogg (K) and Waste Management, Inc. (WM) also announced $1.5 billion share buybacks each representing around 6% and 2% of their market caps at announcement respectively. In total, for a second week in a row we saw 18 companies announce buybacks.

Our focus this week will be on Bermuda-based Triton International Limited (TRTN). Triton announced an additional buyback of $200 million on December 8, 2022. This represents around 5% of its market cap at announcement. TAL International Group Inc. and Triton Container International Ltd. merged together to form Triton International Ltd. in 2016. TAL International’s then-CEO Brian Sondey currently heads the combined company.

Triton is the world’s largest intermodal container leasing company with a market cap of a little over $4 billion and a market share of 26%. Its container fleet comprises of over 7 million twenty-foot equivalent units (“TEU”). The company is involved in the acquisition, leasing, re-leasing and subsequent sale of intermodal containers and chassis. It leases containers from 222 locations in 57 different countries and sells containers from 356 locations in 89 different countries. These numbers clearly indicate the scale of the company’s global presence.

                                                                                               Source: Triton International – Investor Presentation

Growth and Financials:

Triton’s revenue has grew rapidly after the pandemic from $1.41 billion in Q1’21 to $1.82 billion in Q3’22. It has also grown its earnings from $5.13 to $11.21 over the same period. Gross profit margin of 98%, net income margin of 42% and return on equity of just over 30% show the company’s strong profitability. The company has net debt of $8.11 billion. Considering Triton is a leasing company, this is an asset heavy business and the debt is primarily on account of its $11.54 billion in revenue generating assets. Triton refinanced more than $10 billion of long-term debt in 2020 and 2021. Moreover, 86% of TRTN’s debt is either fixed or hedged, which protects the firm against rising interest rates.

Management:

A significant C-suite transition is currently in the cards at Triton. CFO John Burns will retire at the end of 2022 after serving more than 25 years at Triton and will remain with the company in a consulting role following his retirement to ensure a smooth transition. Michael Pearl, the current SVP, Treasurer will succeed Mr.Burns effective Jan 1, 2023.

Triton was focused on fleet growth over the past couple of years. The company purchased $4.7 billion of containers since Q3’20. Triton expanded its asset base by 30% last year and leased these new containers for a 10-year period. This increased the company’s container utilization to an exceptional 99.1% in Q3’22.

                                                                            Source: Triton International – Investor Presentation

Triton has been actively buying back its stock and the company has shifted its investment focus this year from fleet growth to share repurchases. “YTD we purchased almost 8.5M shares for $514M, reducing our share count by ~13%,” said CEO Brian Sondey. Triton’s Board of Directors also increased the quarterly cash dividend for a third consecutive year from $0.65 to $0.70 per common share, reflecting an approximate 8% increase. The dividend will be payable on December 22, 2022 to shareholders of record at the close of business on December 8, 2022.

                                                                                                  Source: InsideArbitrage.com

Q3 2022 Highlights:

Triton reported strong Q3 results, beating consensus adjusted earnings per share estimates for the tenth quarter in a row. Revenues rose 6.1% to $424.7 million, while adjusted net income was $176.5 million or $2.88 per diluted share. This translates to a year-over-year increase of 7.8% and 18.5%, respectively. The significantly higher EPS growth can be attributed to Triton’s aggressive buybacks over the past four quarters. Triton also achieved an annualized return on equity of 27.5%.

Following nearly two years of exceptional container demand, the macro environment changed last quarter. New container orders decreased across the market, and new container prices and market leasing rates returned to historically normal levels. Container drop-off volumes increased in the third quarter, but utilization as mentioned earlier still remains exceptionally high and is well protected by its strong lease portfolio. Over 87% of Triton’s container fleet is covered by long-term and finance leases, and these leases have an average remaining duration of 76 months. Used container sale prices have also dropped from record highs and this will impact future disposals by Triton.

Valuation:

The stock appears cheap with a forward P/E of 6.13 and a forward EV/EBITDA of 7.78. This is probably motivating the company to continue buying back stock. Triton is up by 23% over the past year and is up 83% in the last 5 years.

Bottom line:

The shipping market is quickly normalizing following two years of an exceptional uptrend. However, record fleet investments made by the company over last two years will likely support the company’s performance for many years to come. The company’s multi-year leases will help offset some of the decline in container rates. The cyclical nature of the shipping industry is my primary concern with Triton and I would like to track the company for a few quarters to see how its income is impacted in this new normal.

Welcome to edition 37 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 most significant 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. CarGurus, Inc. (CARG): $13.69

On December 8, 2022, the Board of Directors of this online automotive marketplace approved a new share repurchase program authorizing the company to repurchase up to $250 million of its class A common stock equal to nearly 16% of its market cap at announcement.

Market Cap: $1.63BAvg. Daily Volume (30 days): 1,541,907Revenue (TTM): $1.71B
Net Income Margin (TTM): -2.65%ROE (TTM): 12.89% Net Cash: $339.46M
P/E: N/AForward P/E: 11.82EV/EBITDA (TTM): 8.87

2. Criteo S.A. (CRTO): $26.34

On December 8, 2022, the Board of Directors of this technology company approved an additonal share repurchase program authorizing the company to repurchase up to $200 million of its class A common stock, equal to around 12.8% of its market cap at announcement.

Market Cap: $1.52BAvg. Daily Volume (30 days): 276,742Revenue (TTM): $2.11B
Net Income Margin (TTM): 3.20%ROE (TTM): 6.26% Net Cash: $208.68M
P/E: 25.88Forward P/E: 12.02EV/EBITDA (TTM): 10.50

3. Lowe’s Companies, Inc. (LOW): $211.22

On December 7, 2022, the Board of Directors of this home improvement company approved a new share repurchase program authorizing the company to repurchase up to $15 billion of its class A common stock equal to nearly 12% of its market cap at announcement.

Market Cap: $127.73BAvg. Daily Volume (30 days): 3,376,280Revenue (TTM): $95.95B
Net Income Margin (TTM): 6.97%ROE (TTM): N/A Net Debt: $34.35B
P/E: 19.48Forward P/E: 13.89EV/EBITDA (TTM): 11.13

4. PBF Energy Inc. (PBF): $35.99

On December 12, 2022, the Board of Directors of this independent refiner approved a new share repurchase program authorizing the company to repurchase up to $500 million of its class A common stock, representing nearly 10% of its market cap at announcement.

Market Cap: $5.05BAvg. Daily Volume (30 days): 5,297,803Revenue (TTM): $44.23B
Net Income Margin (TTM): 5.44%ROE (TTM): 69.62% Net Debt: $752.30M
P/E: 1.69Forward P/E: 4.56EV/EBITDA (TTM): 1.64

5.  Douglas Emmett, Inc. (DEI): $16.17

On December 8, 2022, the Board of Directors of this office and multifamily REIT approved a new share repurchase program authorizing the company to repurchase up to $300 million of its class A common stock equal to nearly 9.4% of its market cap at the announcement.

Market Cap: $3.33BAvg. Daily Volume (30 days): 1,849,122Revenue (TTM): $974.72M
Net Income Margin (TTM): 9.46%ROE (TTM): 2.18% Net Cash: $4.64B
P/E: 30.63Forward P/E: 11.76EV/EBITDA: 15.54

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