I’m not a huge fan of share buybacks, but only because few companies execute them properly.
That’s precisely why I find Factset Research Systems’ Buyback Quarterly — an 11-page analysis of share repurchases — such an insightful publication. An entire section breaks down which companies are doing a good job in this arena.
In the first quarter of 2013, S&P 500 companies repurchased $97.8 billion in stock — approximately 3.1% of their outstanding shares. These buybacks accounted for 71% of free cash flow, leaving very little for dividends and debt repayment. Of course, with interest rates so low, it’s understandable that companies would lean that way.
Let’s break things down a little more, and look at three stand-outs Factset highlighted in its first-quarter edition.
Marissa Mayer has gained a great deal of notoriety in her first year as CEO of Yahoo (YHOO), as the stock has soared around 60% since her hiring was announced on July 16, 2012. To top it off, Mayer has also executed some solid share repurchases.
Buyback Quarterly points out that during Q1, Yahoo repurchased its shares at 21.5% of its 7-year median price-to-earnings ratio. This means it paid 5.4 times its trailing twelve month earnings per share. Considering the stock has gained more than 65% over the past year, that makes for some well-timed purchases.
In fact, Yahoo did the best job of any company in the S&P 500 during Q1 considering it repurchased 38.1 million shares during at an average price of $20.35, delivering a three-month return on investment of 22%. Meanwhile, the midpoint of its stock between the high and low during the quarter was $21.39 per share — $1.04 more than what it paid.
Anytime you can buy at less than the midpoint, you’re doing a good job.
Next up, we have a company that paid far less to repurchase its shares over the past 52 weeks (through the end of March) than its average share price over the same 52 weeks. Constellation Brands (STZ) managed to buy its shares at $21.28 per share — less than 72% of its average stock price.
Once again: Anything under 100% is doing a good job.
Still not sold? Well, STZ’s June 25 current price around $51 is a return on investment of approximately 140%. The only other company in the top 10 to achieve a one-year total return close to 100% is GameStop (GME), up 99%.
Plus, with Constellation controlling the Modelo brands in the U.S., that ROI is bound to get even better during the rest of the year.
Last but not least, we must tip our hats to Jabil Circuit (JBL), a Florida-based provider of manufacturing services. Not only did the company buy back its stock in the past quarter at under 60% of its 7-year median P/E, but it also managed to purchase its stock over the past 52 weeks at $18.08 per share — less than 88% of its average price over the same period.
Despite this savvy buying, though, JBL gained just 6.5% over the past year through the end of March. Since then, though, the stock has improved more than 8% compared to a 2% gain for the broader SPDR S&P 500 (SPY).
Plus, Jabil paid $665 million for Nypro Inc. — a privately held maker of molds for medical disposable goods and consumer electronics — back in February. The acquisition provides the company with a strong push into the healthcare field, which is an area it’s wanted to expand into for some time.
While the company’s recently reduced quarterly guidance suggests near-term prospects aren’t the best, Jabil could still be a good pick for the long term.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.