Now that earnings announcement season is ending, stock buybacks naturally pick up. And it’s not just here in the U.S. Stock buybacks in Japan are running 67% higher than in 2015 and more than double the stock buyback pace in 2012. Overall, an increase in stock buybacks may be one reason for the underlying strength in the stock market right now, too.
Why do shareholders like stock buybacks? Today, I’ll explain exactly why they’re great news for investors and then highlight eight companies engaged in multi-million and billion-dollar stock buybacks that deserve a closer look. Five of these are excellent buys at current prices, one is a hold and two are outright sells.
But first let’s discuss why I consider stock buybacks a plus for investors:
- It’s a sign that a company considers its shares good bargain.
- Having fewer shares on the market reduces share price fluctuations.
- Stock buybacks increase earnings per share—helping a company beat analyst estimates when they announce quarterly results.
- For dividend-paying companies, buying back stock means that there are fewer shares that require a quarterly dividend payment.
With all of these benefits, it’s no wonder that many companies are relentlessly buying back their stock. Now, finding out which companies are engaged in share repurchase programs requires some research, so today I’ve compiled a list of the biggest stock buyback launches that you should keep on your radar. (Of course, while a stock buyback program is a good sign for a company, it’s not a green light for a buy recommendation, so I’ve added a column with my Portfolio Grader recommendation for each stock.)
|Ticker||Company Name||Stock Buyback Amount||Quantitative Grade||Fundamental Grade||Recommendation|
|AGN||Allergan Plc||$10 billion||D||C||Sell|
|CMG||Chipotle Mexican Grill||$2 billion||D||F||Sell|
|COST||Costco Wholesale||$4 billion||B||C||Buy|
|HD||Home Depot||$17 billion||A||B||Strong Buy|
|LMT||Lockheed Martin||$3 billion||A||C||Strong Buy|
|PNRA||Panera Bread||$600 million||A||B||Buy|
|YUM||Yum! Brands||$6.2 billion||C||B||Hold|
What can we take away from this? Stock buybacks can be a powerful indicator for investors, but it takes more than a hefty share repurchase program to pass my screening tool. Stock buyback or no, before buying a stock, you should first run it through Portfolio Grader to get a sense of its fundamental and quantitative health.