Are These Buybacks Wasting Your Money?
Feb 7th 2012 4:58PM
Updated Feb 7th 2012 5:02PM
Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll find a few companies that announced new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce share repurchase programs over the last month:
CAPS Rating (out of 5)
New or Expanded?
|AT&T (NYS: T)||***||$9.0 billion||Existing|
|UPS (NYS: UPS)||****||$2.7 billion||Expanded|
But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself; rather, use it as a launching pad for additional research.
Dialing back growth
By initiating a share repurchase authorization program approved in December of 2010, investors are rightly asking, "Is Ma Bell running out of arrows in her quiver?" AT&T missed analyst expectations for earnings, even after stripping out some fairly massive charges for pensions and its failed merger with T-Mobile, because it continues to heavily subsidize sales of Apple's (NAS: AAPL) iPhone. While Verizon (NYS: VZ) also undercuts its own profitability to push iPhone sales, it added 1.2 million customers in the fourth quarter -- its largest increase in three years -- while AT&T added just 717,000. AT&T also had higher customer churn rates than Verizon did.
The quarter also prominently featured the FCC blocking its takeover of T-Mobile, which leaves the carrier having to try to buy up spectrum in smaller deals than in such large blocs. That and share buybacks are the dwindling options AT&T has available to it to boost shareholder value in the near term.
CAPS member badducky dismisses such concerns, believing Ma Bell remains a leader in mobile communications, but tell us in the comments section below or on the AT&T CAPS page whether it will end up shooting itself in the foot. Next, add the carrier to your Watchlist to follow whether the buyback successfully boosts its efforts.
Stand and deliver
Online consumer shopping is threatening the very existence of big-box retailers like Best Buy, but cementing the viability of e-tailer Amazon.com in the pantheon of great businesses.
The online experience is also bolstering the prospects of the shipping companies that make Amazon's vaunted customer service possible. Both FedEx (NYS: FDX) and UPS saw demand expand such that they felt confident enough to raise rates without fear of losing customers. Big Brown said it delivered a record number of packages in the fourth quarter -- 1.13 billion, or 3.6% more than a year ago.
With a slowing European economy and the U.S. markets expected to grow at a lesser pace than it did last year, 2012 might hold a few surprises yet in earnings. That said, the company seems to be on a better footing than it was just six months ago, and UPS's stock has jumped nearly 30% from lows it hit during the summer.
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At the time this article was published Fool contributor Rich Duprey owns shares of Best Buy, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Amazon.com, FedEx, United Parcel Service, Apple, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, and FedEx. Motley Fool newsletter services have recommended writing covered calls in Best Buy. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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