FCharlie
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Posts posted by FCharlie
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I think one by one these left for dead companies are figuring out that the playbook that is most likely to work for them in this investing environment is to pour all free cash flow into buybacks, or a combination of debt reduction and buybacks. The math doesn't lie, if you trade for less than 10X earnings then you are essentially priced for a zero growth future. But because you are trading for less than 10X earnings you can create enormous growth just buying your stock. GM is a perfect example. Their stock is up 50% since November, eps estimates get revised higher every month, but it still trades for less than 5X earnings. If people will never value it higher than 5X, they don't need to do anything but buy every share they can afford and investors will do phenomenally well.
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AutoNation has repurchased about 4% of their shares YTD, if you annualize YTD they are on track for another year of buying about 12% of shares outstanding. Also they just authorized a new $1 billion buyback vs their $7 billion market cap. Stock nearing an all-time high and still trading at just 9X earnings. AutoNation has bought over half their shares in the last five years.
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GM has repurchased 17% of its shares since July (1.375 billion to 1.14 billion), largely through a $10 billion accelerated repurchase program. With that ASR now finalized, they continued buying in March through open market purchases. On the conference call the CEO mentioned they were on track to reduce shares outstanding to fewer than 1 billion, which would be a further 12% reduction. Interestingly, management said on the conference call that even though the stock price is up 50% since the ASR, the PE has only increased from 4 to 5. It's honestly remarkable that this stock trades at these levels when the buyback alone at 5X earnings has the potential to drive 15% annual eps growth.
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I like Medtronic for dividends. You aren't reaching too hard for yield but you get over 3%. The stock isn't expensive, plus there's been 46 consecutive years of dividend increases
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I thought this was an interesting interview on the subject of gold and gold miners
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1 hour ago, Vish_ram said:
I own and like MUSA, the greatest cannibal
Thanks for mentioning this one. In 2015 their market cap was about $3 billion and they've spent $3 billion buying shares since that time. They've opened about 500 new locations in that time. They are a lot like AutoZone.
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GM purchased 15% of their shares in December, with another 5-6% likely repurchased in Q1 as their ASR is settled. 2024 EPS estimates have risen from $6.76 to $9.00 since this buyback was announced, and the stock has risen 29%. Interestingly, the stock traded at about 4.5X earnings before and still trades at about 4.5X earnings. I don't follow this company closely, but let's say GM continues to generate $10 billion of free cash flow going forward, and continues buying stock at 4.5X earnings, how long until the stock rerates higher to say 7.5X earnings? And is 7.5X earnings appropriate if you are growing EPS by 15-20% annually? Why not 9X earnings? The potential returns get incredibly appealing in these types of situations, and these situations seem to be more and more common as the breadth of the market continues to diverge with many companies share prices left for dead.
Total Number of Shares Purchased(a)(b) Weighted-Average Price Paid per Share(c) Total Number of Shares Purchased Under Announced Programs(b) Approximate Dollar Value of Shares That May Yet be Purchased Under Announced Programs(b) October 1, 2023 through October 31, 2023 25,399 $ 32.32 — $1.4 billion November 1, 2023 through November 30, 2023 — $ — — $11.4 billion December 1, 2023 through December 31, 2023 215,202,490 $ 31.60 215,189,872 $1.4 billion Total 215,227,889 $ 31.60 215,189,872 -
I don't recall AutoZone ever trading for 7X earnings at any point. 12-14X earnings yes. The thing about AutoZone is that they started deploying all free cash flow into buybacks in 1999 and they just never stopped. Like clockwork, every year shares decline 7%, 8% per year and the store count always grew. I don't expect it will ever trade below 12-14X earnings because they are too consistent. Their margins are too high. They sell something that you either need, or don't need. Imagine hearing on the radio that AutoZone has a sale 30% off starters. You think, but I don't need a starter. AutoZone knows you only need a part like that in the event of failure at which point you'll pay whatever price you have to. So they basically don't discount anything and their gross margins are over 50%. They grow eps every single year. I can't remember any year their eps declined.
AutoNation has much lower margins, bogged down by new car margins which are historically not very high. Finance as well as parts & service make all the money. AutoNation historically trades around or just below 10X earnings so being at 7X currently they seem to be all too happy to deploy all free cash flow into buybacks. They, unlike AutoZone, will turn off the buyback if the price gets high enough. AutoNation also has the AutoNation USA division, which sells used cars. They only have 19 locations now, up from about 5 a few years ago. Carmax has hundreds of locations and trades at a much higher valuation so if all AutoNation ever did going forward was build a few hundred more used dealerships and keep shrinking their share count 10% per year, eventually rerating to KMXs multiple I'd be delighted.
Also, both companies own lots of real estate which is comforting in the event that there ever was a true disruption to their industries.
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AutoNation bought another 3% of shares in the quarter. 13% for the year. 65% of shares in the last decade. Still trades 6-7 P/E. It's honestly remarkable how skewed everything is and how many stocks trade at single digit multiples even as they are gobbling up shares as fast as they can. If active management ever comes back or if the MAG7 ever deflate, it could get really exciting for these companies that have hardly any shares left to divide by.
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A lot of public libraries have printed copies available. I've spent countless hours looking at it and making copies of pages when I stumbled across something interesting.
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On 12/6/2023 at 9:47 AM, Spekulatius said:
Bought a starter in APA, mostly because I think the value of their exploration assets in Suriname are not reflected fully in the valuation. Suriname is adjacent to Guyana and APA has a stake in two blocks 53 and foremost 58 where the latter is operated by Total (APA owns 50%) and has shown several gushers:
https://geoexpro.com/the-suriname-guyana-basin/
https://investor.apacorp.com/static-files/cb0eb758-205d-406c-8af0-9f781d1a245c
this will take some time to play out (years) but i think at some point continued exploration progress and development will start to get reflected more in the share price. Even discounting Suriname, APA looks quite cheap based on metrics
Welcome to the APA club. I've been riding this one up and down and ultimately nowhere for a couple of years now with nothing to show for it but dividends and a few puts that I sold that expired. I too think it's seriously undervalued, yes for Suriname, but also for the LNG contract with Cheniere that at one point would have been worth $1.5 billion annually on its own but today is more like $0.5 billion. Every time APA gets up in the mid $40s I think it's going to break out yet every time it has just round tripped back down to these levels. I think you will do well with this entry point. One thing that has been frustrating to me is that APA has a habit of pausing their buyback quite often for news that hasn't been disclosed, hopefully they can buy back a solid amount of shares going forward because the valuation is really low.
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Another 1.3 million AutoNation shares repurchased in Q3. Only 42.8 million to go
Capital Allocation, Liquidity and Leverage
During the quarter, cash from operating activities totaled $256 million, capital expenditures were $87 million, and AutoNation repurchased 1.3 million shares of common stock for an aggregate purchase price of $200 million. As of October 25, 2023, AutoNation has approximately $439 million remaining under its current Board authorization for share repurchase. The Company has approximately 43 million shares outstanding, which represents a 10% decrease year-to-date and a 49% decrease from the 83 million shares outstanding at the end of 2020. -
1 hour ago, DooDiligence said:
Shittybank's been no schlacker on buybacks.
Shittybank
June 30, 2015: 3,009,845,273 shares outstanding. Stonk Price $55.24 Market Cap $166 billion
Sept 19, 2023: 1,925,702,484 shares outstanding. Stonk Price $42.68 Market Cap $82 billion
Shares down by 36%
Market Cap down by 51%
I think Shittybank has the ingredients to be one of the best performing cannibals over the next one to two decades. It's universally unloved. No one has high expectations for it, yet they will probably spend their entire market cap on buybacks by the end of the decade.
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9 minutes ago, Spekulatius said:
$DFS does not do car loans. I think you are referring to $COF.
I believe they were referring to AutoNation
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Yeah, Thanks Spek for bringing Discover to my attention... I bought small amounts of DFS at $91, $90, $89, and now $88 yesterday. I'm planning on picking up a small amount each time it trades lower. It's interesting how some companies continue to get awarded mediocre valuations no matter what they do and it serves up the opportunity to just allocate all your profit directly at buybacks. Like "here's your stock at 6X earnings, have all you want we don't care"
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Well I think we can all agree that AutoZone wins the award for greatest cannibal of all-time. In 1998, when they first began buying back stock, their market cap was just $3.5 billion. Since then they have repurchased $33.8 billion of shares. Since 1998, the stock has risen from $25 to $2,500.
Other Selected Financial Information (in thousands) August 26, 2023 August 27, 2022 Cumulative share repurchases ($ since fiscal 1998) $ 33,815,711 $ 30,092,422 Remaining share repurchase authorization ($) 1,834,289 1,057,578 Cumulative share repurchases (shares since fiscal 1998) 154,032 152,508 Shares outstanding, end of quarter 17,857 19,126 -
1 hour ago, Saluki said:
Eddie Lampert sold more than $20mm of AN stock in the past couple of months. One way to look at this is that the buybacks are great for current shareholders. Another way is that the insiders are using the cash register to keep the price high so they can sell out and leave you holding the bag. Which is it? I don't know.
If you go back, way back to 2008, Eddie Lampert was filing form 4s buying hundreds of thousands, sometimes millions of shares of AutoNation at prices between $5-$13 per share. At the time Eddie owned about 58 million shares. Today AutoNation has only 44 million shares outstanding. Eddie has needed to sell periodically for years or he'd take the company private. That's a pretty nice problem to have. Very similar situation with Eddie and AutoZone. If he'd never sold a share of that he'd basically have taken the company private by now. I don't think either company is leaving anyone holding any bags. It's just their preferred method of capital allocation.
https://www.sec.gov/Archives/edgar/data/350698/000089375008000610/xslF345X03/edgar.xml
https://www.sec.gov/Archives/edgar/data/350698/000089375008000602/xslF345X03/edgar.xml
https://www.sec.gov/Archives/edgar/data/350698/000089375008000598/xslF345X03/edgar.xml
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From today's earnings release from AutoNation, the company has repurchased 47% of it's shares since year end 2020
During the Second Quarter of 2023, AutoNation repurchased 1.6 million shares of common stock for an aggregate purchase price of $207 million. AutoNation has approximately $670 million remaining Board authorization for share repurchase. The Company has approximately 44 million shares outstanding, which represents an 8% decrease year-to-date and a 47% decrease from the 83 million shares outstanding at the end of 2020.
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Truist (BB&T/SunTrust)
1997 $31
2023 $31
I bought this morning.
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6 hours ago, ourkid8 said:
We unfortunately have to wait some time before the Citi Banamex deal is announced and eventually closes before they resume repurchasing shares. It is extremely frustrating waiting considering they hit 13% CET1 capital ratio. This is such a lost opportunity in creating value for shareholders.
Yes sadly Shittybank isn't buying right now, but the reality is they should be buying by mid-year 2023 and the stock is highly unlikely to trade above tangible book value between now and then, or even after they resume buying. The bank earns about $7/share, pays $2 in dividends plus a little more for preferred dividends... Retained earnings with some help from AOCI will drive tangible book value to $100/share in a few years. I think this is what makes me so excited for C. The stock needs to go up 55% just to reach tangible book value and by the time it actually does go up 55%, tangible book value will certainly be higher.
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One of the best, if not the actual best performing stock of all time is Altria/Philip Morris. A core business that endlessly churns out higher profits and constant share repurchases, while being cursed, (or blessed) with a mediocre valuation the entire time. For the most part, AutoZone also fits this description really well.
It would seem like the right way to think about this list is to ask yourself which of these companies are nearly certain to be better off ten years from now, and how does the market value them in the meantime as they are executing future buybacks. The DDS situation is impressive, but going forward it will be much harder for them to keep that buyback pace up unless the share price declines materially or earnings increase materially. I would imagine DDS would gradually fall from the top of the list towards the bottom.
The stock that stands out the most to me for potential opportunity is Citibank. Sure it's near the bottom of the list now, but this is a company that has repurchased over a billion shares in the last handful of years and no one cares even a little bit. Also, I know they are inferior to JPMorgan and Bank of America, but it's hard to imagine a future where Citi doesn't still dominate credit cards and global corporate banking. The stock continually trades between 5 and 7 times earnings, and their #1 capital allocation priority is buybacks. I'd be really interested in revisiting this list in the future to see how things are going.
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12 hours ago, gfp said:
Kind of jumps out at you how popular these repurchases are with retailers. I guess the AutoZone example influenced a bunch of weaker companies to try it - several will be filing bankruptcy as a result.
AutoNation is another retailer that has been a massive buyer of their own shares over the last fifteen years. I always assumed Eddie Lampert was a major influencer in AZO and AN's capital allocation. He was on the board of both and a super sized investor in both. Both were great investments... Then he tried the aggressive buyback strategy at Sears and completely bombed. So yeah, It's interesting how it can go both ways.
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1 hour ago, Spekulatius said:
I do have a cannibal screen looking for companies that reduce their share count at a rapid pace and there are no commodity companies in it.
I'm curious who the top 5 cannibals are? I would guess AutoZone would be up there somewhere. Maybe Apple?
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29 minutes ago, Stuart D said:
Imagine a $75b buyback at PBR
A similar cash flow statement to CVX, but a sub $100b market cap.
I know, I know. We should be grateful for the monster dividend. One mustn’t be too greedy, lol.
A lot of the Canadian oil producers are planning massive buybacks as a percentage of their market caps. Athabasca Oil is projecting $1.1 billion of free cash flow in the next three years with just a $1.4 billion market cap. They have more cash than debt on the balance sheet, and plan to allocate 75% of their free cash flow to buybacks. So, doing the math, they could buy over half their shares in the next few years.
Public Company Share Repurchase-Cannibals
in General Discussion
Posted
Yes GM has been a lousy investment for so long that a lot of people won't even consider it. But price has a way of changing sentiment. If GM continues to sit here generating $10 billion of FCF annually and keeps buying this aggressively their share the price is going to keep going higher. The ASR was a massive win. Let's just say out of the 1.4 billion GM shares that existed a year ago, let's just suppose 400 million of them were owned by index funds. Then here comes GM trying to buy 400 million of the billion that aren't owned by index funds. That's an insane amount of buying pressure for a stock that no one loves and no one respects. And because GM executed the overwhelming amount of those buybacks at about 4X earnings with free cash flow and cash on hand their eps estimates have soared, matching most of the price rise. The PE is now 5X. They can keep doing this just like AutoNation and the coal companies and the oil companies and everyone else who's gotten the memo that this is how you win when no one loves your stock