One of the big problems with Airlines for America’s request for bailout money is that many of the nation’s airlines have squandered free cash flow on stock buybacks.
According to the Guardian, five of America’s largest airlines returned $45 billion to shareholders over the past five years for dividends and stock buybacks. Bloomberg reported that these same airlines spent 96% of their free cash flow over the past decade doing share repurchases.
Now that the coronavirus from China has brought the travel industry to its knees, the airlines don’t have any money to buy back their shares. The cupboards are so bare, they’re asking for a bailout of $50 billion or more.
Politics aside, most companies aren’t likely to be buying back their shares in these difficult times. However, America’s highly paid CEOs just might be.
Here are seven CEOs using their significant wealth to buy back their company stock now.
CEO Buybacks: John Barry, Prospect Capital (PSEC)
In this time of uncertainty, it’s hard to know which industries will be successful at keeping doom and gloom from the door. Business development companies (BDCs) are one segment of the financial services sector that seems destined to get pummeled by the coronavirus.
After all, companies like Prospect Capital (NASDAQ:PSEC) — a leading provider of debt and equity to middle-market businesses in the U.S. — is uniquely exposed to the ravages of a virus that has virtually everyone working from home.
If it’s lending money to companies that can’t get their products made because they don’t have any employees at the physical manufacturing plant and these companies don’t have the cash on hand to ride things out, the end-game could be disastrous.
Now, I’m not saying for a second that’s what’s happening to Prospect. It’s merely a potential consequence of social distancing.
In the past month through March 17, PSEC has held up better than the U.S. markets as a whole. It has a total loss of 28.1%, a smaller loss than that of the Morningstar U.S. Market Total Return Index.
To show he believes in Prospect’s business model and to let shareholders know the sky is not falling, CEO John Barry has been buying heavily in recent days. Barry’s most recent U.S. Securities and Exchange Commission Form 4, from March 18, shows that he bought 4.6 million shares at an average share price of $4.77 for a total outlay of $22 million.
This latest purchase brought the number of shares he owns to 53.4 million, or 14.5% of Prospect’s 367.7 million shares outstanding.
Barry understands the prospect (an intended pun) for making money on these trades over the long haul is excellent.
David Simon, Simon Property Group (SPG)
Google the words “retail stores closing,” and you’ll find hundreds of thousands of results. It seems that every time I look at the news, another big retailer has updated its operational situation. To say that retailers are in a state of flux would be an understatement.
David Simon’s company, Simon Property Group (NYSE:SPG), is at the top of the proverbial retail food chain. Not only has he seen a lot of changes in retail in the 25 years he’s been chief executive of one of the world’s largest owners of shopping malls, but he’s not afraid to put his money where his mouth is.
On March 17, Simon bought 150,000 shares of SPG stock at a weighted average share price of $60.83, for a total outlay of $9.1 million. There are very few CEOs of S&P 500 companies that I can find that have come anywhere close to Simon’s bet the retail REIT is going to be just fine once the coronavirus is beaten down.
I’d like to see more CEOs walk the talk.
Brian Kingston, Brookfield Property REIT (BPYU)
On March 2, Brookfield Property REIT (NASDAQ:BPYU) changed its stock symbol from BPR to BPYU. Since that time its stock has fallen by half. As I write this, the owner of high-quality real estate assets is looking like it might fall below $8.
I’m a fan of any company affiliated with Brookfield Asset Management (NYSE:BAM). Brookfield’s CEO, Bruce Flatt, knows how to wait for asset prices to come to him, and no thanks to the coronavirus, they are doing precisely that.
On Feb. 5, 2020, Brookfield Property CEO Brian Kingston had good things to say about several areas of investment, including its office and retail real estate. Naturally, those two areas are going to suffer from a recession economy made worse by the fact no one can go outside.
That’s okay. All Brookfield affiliates are trained to recycle capital. It will hold assets until prices rebound. The same applies to Kingston, who acquired 115,000 shares of BPYU on March 13 at an average price of $12.44, an outlay of $1.4 million. Unfortunately, since then, its shares have fallen a bunch more.
I suspect Kingston will be buying some more in the days ahead.
I wouldn’t say that Brookfield Property REIT is the best of the Brookfield affiliates (it’s the former GGP retail plus an office segment). However, its office developments in the U.S. and United Kingdom should improve its profitability picture in the next couple of years.
Christopher Rondeau, Planet Fitness (PLNT)
I walked by a gym early on March 16. To my surprise, there were people in it. You couldn’t catch me within 10 yards of a fitness facility at this point. My experience with gyms is that very few people understand the concept of social distancing. Like cruise ships, they’re major Petri dishes.
Up until the coronavirus started to take on a life of its own, Planet Fitness (NYSE:PLNT) was doing just fine. Its stock hit a 52-week high of $88.77 on Feb. 19; it was up almost 19% for the year. It delivered fourth-quarter results Feb. 25 that included an 8.6% increase in same-store sales and a 29% increase in earnings per share.
However, that was all before the coronavirus became a problem in the U.S. Now that many cities are going into virtual lockdown, estimates of how much revenue it will lose in the next few months are hard to know. One estimate I read started at 10%, but that seems low.
As I write this, PLNT stock is up 14% on the day, trading where it did in October 2017.
I guess that’s why CEO Christopher Rondeau bought 20,000 shares of his company’s stock March 12 at prices between $50.54 and $51.24. Spending more than a million dollars, he ought to buy some more given the shares have lost almost half their value from a week ago.
George Michael, Qurate Retail (QRTEA)
Qurate Retail (NASDAQ:QRTEA) is a bunch of different retail brands rolled into one that includes QVC, HSN (Home Shopping Network) and Zulily. It is one of the many spinoffs created by John Malone and Greg Maffei, the CEO of Liberty Braves (NASDAQ:BATRK).
In late February, Qurate reported Q4 2019 and full-year results. They weren’t all that good with none of its four operating segments growing sales in the past year. From a profit perspective, it did slightly better, increasing its adjusted earnings per share to $1.93 for the year, 7 cents higher than in 2018. On a GAAP basis, however, it lost $1.08 per share due to $994 million in impairment charges related to HSN.
Add the coronavirus to its mediocre results and the share price has naturally faced intense downward pressure in recent days. At the end of February, QRTEA stock was trading at $6.82. As I write this, it is down to $4.40, nowhere near $30, where it traded in 2015.
I’m not sure if it has a shot at rebounding, but CEO George Michael sure does. On March 5 and 6, Michael acquired 550,000 shares of his company’s stock at around $5.44. That’s an outlay of almost $3 million.
You have to take your hat off to CEOs like Michael, who are willing to bet on themselves and the rest of their employees. I hope he succeeds in turning Qurate around.
Richard Gelfond, Imax (IMAX)
However, I have a soft spot for anything related to movie theaters — my grandfather was an executive of a Canadian movie theater operation in the 1960s — so the fact Gelfond stepped up and upped his ownership by almost 10% at a time when Imax is sure to suffer financially, says a lot about the man and the company he runs.
Don’t give up on Imax.
While it was downgraded from “buy” to “hold” March 12 by Benchmark analyst Mike Hickey on concerns about the coronavirus hurting its business, Gelfond spoke recently about how China’s cinemas could soon reopen.
“I’m hoping — and a lot of this is subject to biology — that by June, things will be somewhat more normal over there,” Gelfond told The Hollywood Reporter.
“While that doesn’t make it less painful, it does make it less shocking. I saw this movie in China, and we have more understanding about what’s going on here.”
Imax has more than 700 theaters in China. The sooner it’s back up and running, the better shareholders will feel about their investment. Since the U.S. is about two months behind China, America ought to be coming out of this by the end of August or early September.
As Gelfond says, it’s not ideal, but the alternative could be much worse.
On a day when the markets were down significantly, IMAX stock finished higher. Down 50% year-to-date through March 18, Gelfond’s purchase could turn out to be an opportune one.
Richard Kinder, Kinder Morgan (KMI)
I put the founder and executive chairman of Kinder Morgan (NYSE:KMI) on this list despite him no longer being the CEO — he gave up day-to-day responsibilities for the company in June 2015 — because he’s been buying so many shares lately, I just had to.
Besides, no other CEOs of large companies appear to have stepped up to the plate in recent days.
Here’s a record of Kinder’s recent purchases.
March 11: 500,000 shares at $15.51
March 5: 300,000 shares at $19.51
Feb. 28: 300,000 shares at $18.88
Feb. 26: 300,000 shares at $20.72
The oil and gas executive has spent almost $26 million in less than a month on KMI stock. He now owns 244.5 million Class P shares or almost 11% of its stock.
As I write this, Kinder Morgan’s stock price is trading below $10, putting Kinder’s latest purchases well underwater in less than a month. That illustrates just how far the oil and gas business has fallen in 2020.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.