Public Company Share Repurchase-Cannibals

[nickenumbers]

All,

 

I have a growing awareness of Cannibals, Public Companies with share repurchase programs. I am not talking about token, Micky Mouse share repurchase.  We are talking about large meaningful share repurchase. 

 

I have always known what they are, but with CoBF input regarding Henry Singleton/Teledyne, and after reading the book Outsiders, I have a far better appreciation for this technique.

 

If a company properly executes a share repurchase capital allocation move, at the right time and at the right price, relative to their other alternatives.  Lets say that the best chess move for the company was to repurchase their own shares.  And lets say that they perform that to the tune of 5-10% of share outstanding.  And year after year, they continue to shrink the shares outstanding, and reduce the market cap.

 

At some point the Sr. Managers would have a choice to either take the company private, or something else..  Is there a minimum market cap so that the Sr. Managers can adequately extract maximum value from potential future investors. 

 

What would be an end game strategy when the Sr. Managers know that they are sitting on a rocket-ship of a company that the larger market is overlooking or has not yet discovered?

 

What usually happens in these situations?

[gfp]

The Energy thread discussions of CVX made me curious to run some basic screens on current "cannibals" so I thought I would post some here to not clutter up the Energy thread further.

 

I ran a screen for 5 year periods ending 2022 and ranked by CAGR of diluted avg. shares outstanding.  I took out the not-real companies and data errors.

 

For 5 year period you get:

 

Ticker,  CAGR diluted share count (per year avg.)

DDS  (9.71%)

SYF  (9.58%)

CTRN  (9.27%)

HPQ  (9.21%)

ORCL (7.96%)

BBBY (7.89%)

ATKR (7.83%)

SGU  (7.73%)

JACK  (7.23%)

JEF  (7.17%)

MCK (7.12%)

HIBB (7.02%)

TOL  (6.99%)

GME  (6.9%)

ALLY  (6.89%)

SLG  (6.66%)

AZO  (6.53%)

ZION  (6.44%)

WBBW  (6.4%)

BIG  (6.22%)

C  (6.15%)

---------------------------

 

For 10 year period you get:

 

SGU  (4.92%)

WAFD  (4.82%)

MCK  (4.76%)

HFBL (4.75%)

TRV  (4.75%)

GCO  (4.73%)

AAPL  (4.72%)

CTRN  (4.7%)

NICK  (4.53%)

KR  (4.46%)

URBN  (4.43%)

REX  (4.2%)

C  (4.2%)

QCOM  (4.17%)

UNP  (4.15%)

...

 

some Buffett Holdings:

BK

https://www.macrotrends.net/stocks/charts/BK/bank-of-new-york-mellon/shares-outstanding

AXP

https://www.macrotrends.net/stocks/charts/AXP/american-express/shares-outstanding

BAC

https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/shares-outstanding

C

https://www.macrotrends.net/stocks/charts/C/citigroup/shares-outstanding

MCO

https://www.macrotrends.net/stocks/charts/MCO/moodys/shares-outstanding

 

 

 

[Stuart D]

AGO would be up there. Halving their share count in the last 5yrs.

 

 

 

[changegonnacome]

15 hours ago, gfp said:

The Energy thread discussions of CVX made me curious to run some basic screens on current "cannibals" so I thought I would post some here to not clutter up the Energy thread further.

 

I ran a screen for 5 year periods ending 2022 and ranked by CAGR of diluted avg. shares outstanding.  I took out the not-real companies and data errors.

 

For 5 year period you get:

 

Ticker,  CAGR diluted share count (per year avg.)

DDS  (9.71%)

SYF  (9.58%)

CTRN  (9.27%)

HPQ  (9.21%)

ORCL (7.96%)

BBBY (7.89%)

ATKR (7.83%)

SGU  (7.73%)

JACK  (7.23%)

JEF  (7.17%)

MCK (7.12%)

HIBB (7.02%)

TOL  (6.99%)

GME  (6.9%)

ALLY  (6.89%)

SLG  (6.66%)

AZO  (6.53%)

ZION  (6.44%)

WBBW  (6.4%)

BIG  (6.22%)

C  (6.15%)

---------------------------

 

For 10 year period you get:

 

SGU  (4.92%)

WAFD  (4.82%)

MCK  (4.76%)

HFBL (4.75%)

TRV  (4.75%)

GCO  (4.73%)

AAPL  (4.72%)

CTRN  (4.7%)

NICK  (4.53%)

KR  (4.46%)

URBN  (4.43%)

REX  (4.2%)

C  (4.2%)

QCOM  (4.17%)

UNP  (4.15%)

...

 

some Buffett Holdings:

BK

https://www.macrotrends.net/stocks/charts/BK/bank-of-new-york-mellon/shares-outstanding

AXP

https://www.macrotrends.net/stocks/charts/AXP/american-express/shares-outstanding

BAC

https://www.macrotrends.net/stocks/charts/BAC/bank-of-america/shares-outstanding

C

https://www.macrotrends.net/stocks/charts/C/citigroup/shares-outstanding

MCO

https://www.macrotrends.net/stocks/charts/MCO/moodys/shares-outstanding

 

 

 

 

What screen did you use - and surely LBTYK would have fallen in the top quartile of canibbals

 

 

[gfp]

These results are from TIKR and for US and Canada only.  I don't know how good their Canadian data is.  Most of the results were US listed companies.

 

LBTYK didn't make the 10 year list because they were still issuing new shares 2012-2016.  Since that peak they have retired a lot of stock.  I'm sure they placed somewhere near the top on the 5 year list (but not in the top few that I posted).

[gfp]

9 hours ago, Stuart D said:

AGO would be up there. Halving their share count in the last 5yrs

 

 

Yes, it seems like the TIKR screener is leaving out some companies that look like they should make the top of the list.  Maybe there is some bad data or it is the fact that I screened for fully diluted share count and we are looking at shares outstanding for most of these companies.  I'll try the screener using shares outstanding and see if it spits out different companies.

[gfp]

For 5 years and basic shares outstanding the only new company to show up near the top of the screener was Ted Weschler's pick RH - the old Restoration Hardware.  Seems like AGO should show up on that list.  Bad data I guess.

 

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.  DDS is family controlled and the huge reduction in share count doesn't even capture the multiple special dividends they have issued.  Got to love actual owner operators.

[Spekulatius]

I use the global screener in Tickr.com. I look for 8% annual CAGR share count shrinkage.

 

 

Edit> found that I I go to just 2021 rather than 2022, I get better data:

Edited January 28, 2023 by Spekulatius

[gfp]

Thanks Spek - I used the same screener but hadn't tried 2021.

 

One company that jumped out at me (that I had never heard of before) was Navient (NAVI).  Looks like a huge reduction in shares outstanding over 10+ years.  Is anyone familiar with Navient?  Are they similar to NelNet?  I've followed Nelnet since learning about them from Adam Peterson at Magnolia Capital / Boston Omaha.  Would imagine next month's Supreme Court decision on Biden's 16m student loans will move NelNet one way or the other.

 

Anyone follow Navient?

https://www.macrotrends.net/stocks/charts/NAVI/navient/shares-outstanding

[FCharlie]

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. 

[FCharlie]

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.

[gfp]

9 hours ago, FCharlie said:

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.

 

Well I know one old fella in Omaha who seemed to notice and hold his nose and buy.

[no_free_lunch]

13 hours ago, FCharlie said:

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.

I continue to like C as well. I think they continue to mop up stairs and at some point turn the dividend on, the market would respond to a 12% dividend ir whatever it could be in a couple years. 

 

Maybe they can get acquired too?  Not sure if it would pass regulations, but perhaps could happen from some outside pool of investors. Yiu can see how if you bought it at 9 or 10x earnings a good team could perhaps do very well. This scenario is knd of wishful thinking admittedly.

 

I think ultimately it may rise when  international does well. 

 

 

 

Edited January 29, 2023 by no_free_lunch

[ourkid8]

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. 

[no_free_lunch]

I was under the impression that they simply needed to rebuild capital ratios and could resume share buybacks this year.   The way I look at it, either the shares stay down and then C eventually vacuums at rock bottom prices or else it moves up.

 

The banamex sale is at a multiple of book while citi trades at a discount to book.  Not sure how fair of a comparison that is but it provides some insight that the shares are quite undervalued.  I think this could move up quickly at some point.

 

All that said, it is called shitticorp for a reason so it is about a 3% position for me.

[Spekulatius]

I agree the Citicorp meets the cannibal framework. Banamex is actually one of their better business, so the sale is a bit of a headscratcher to me, especially with Mexico overall being depressed

[FCharlie]

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. 

[gfp]

As far as unique management incentives go, I haven't seen something quite like this before:

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001555074/000155507423000004/aamc-20221230.htm

 

"the Company issued 1,000 shares of Series N Preferred Stock (the “Series N Preferred Stock”) to Jason Kopcak, Chief Executive Officer of the Company, and 1,000 shares of Series O Preferred Stock (the “Series O Preferred Stock”) to Stephen R. Krallman, Chief Financial Officer of the Company. Both issuances were valued at $10.00 per share. Holders of the Company’s preferred stock have the right to a preferred stock dividend when and if declared by the Board. The Board intends that Mr. Kopcak’s preferred stock dividend will include one share of common stock for every three shares of common stock the Company repurchases during the prior quarter."

 

(AAMC)

[Jaygo]

DOO.to  BRP is the maker of powersports equipment like skidoo, Seadoo, fishing boats and a whole host of other awesome gear. I grew up with these bad boys.

 

They are category leaders in water and snow and in the top 3 for Atv / offroad Rumours of electric motorcycles as well as a further push into boating.

 

Came public with a float of 118 Million shares and now 10 years later have 78 million shares out. Something about these Quebec industrials and their incredible capital allocation. Also pay a healthy dividend and are expanding through acquisitions all the while buying back half the stock. Pure cannibal. 

[ourkid8]

CN Rail is not an uber cannibal but over the last 10 years have reduced shares outstanding by a meaningful amount while continuing to grow the top and bottom line. I expect management to continue to use excess capital to reduce shares outstanding by $4-5B/year for the foreseeable future.  Shares outstanding:  2012: 856.8 and 2022: 671.0 - Slow and steady!   It becomes magical when you are able to repurchase 80%+ of the shares outstanding.   

Edited January 30, 2023 by ourkid8

[Xerxes]

On large energy companies, it has become fashionable to say that they are always off on their share buyback program. Buying their own shares at cyclical high (as commodity prices soar) and not doing so when it is at a cyclical low.

 

I think what is being missed is that, energy companies (and I could add mining as well) are always in the business of depleting and replacing their reserves. A barrel of crude produced today (to generate revenue) need to be replaced. Otherwise, energy companies production will just drop.

 

Therefore, it makes perfect sense that the oil majors are investing and leveraging their balance sheet to counter-cyclically invest in assets, organically or otherwise, in a downturn, while foregoing the share buyback programs. Of course in an up cycle, they have that excess free cash, which they utilize to re-charge their balance sheet via de-levering, while the rest is return to shareholders, simply because it is cheaper to buy the one asset they know well (their own company) than to invest in expensive drill bits, assets, labor and acreage when prices are at an all time high. Also, better for the shareholder to decide what to do with the excess cash.

 

This model as seen from the outside, in a vacuum (i.e. without considering opportunity cost), paints a picture of a clueless management team, that does not understand it is better to buy your own shares when they are low.

 

The only reason the Exxons and the Chevrons of the world are still standing tall after a century of being in business is precisely because they are investing through their balance sheet counter-cyclically, and de-levering in good times (of course mistakes happen ex: XTO). It is just that the financial community is over-obsessed about share buyback and ignores the opportunity cost aspect of re-investment which is massive in commodity businesses.

 

 

 

[Spekulatius]

I would make the argument that the cyclical nature of their FCF makes energy companies poor candidates to buy back stock to begin with. They should be thinking about replacing buybacks with special dividends - the way PBR is doing it. Even with the tax leakage, the results may be better overall.

 

Energy companies absolutely need to keep investing when energy prices are low. If they stop, the whole organization gets hollowed out (the skills to run exploration and development will wane) and it is also cheaper to develop resources when prices are low rather than when prices are high and everyone else is rushing in.

[gfp]

On 1/30/2023 at 8:52 AM, gfp said:

As far as unique management incentives go, I haven't seen something quite like this before:

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001555074/000155507423000004/aamc-20221230.htm

 

"the Company issued 1,000 shares of Series N Preferred Stock (the “Series N Preferred Stock”) to Jason Kopcak, Chief Executive Officer of the Company, and 1,000 shares of Series O Preferred Stock (the “Series O Preferred Stock”) to Stephen R. Krallman, Chief Financial Officer of the Company. Both issuances were valued at $10.00 per share. Holders of the Company’s preferred stock have the right to a preferred stock dividend when and if declared by the Board. The Board intends that Mr. Kopcak’s preferred stock dividend will include one share of common stock for every three shares of common stock the Company repurchases during the prior quarter."

 

(AAMC)

 

Share price up 57% in the month since this post.  Hat tip ragnarisapirate....

[Saluki]

Nice one!  

 

I'm sitting on some VTS that I like.  Besides the nice dividend, in their first post-spin conference call they announced a $60mm stock buyback (that's almost 12% of the market cap). 

[FCharlie]

From today's earnings release from AutoNation, the company has repurchased 47% of it's shares since year end 2020

 

https://investors.autonation.com/news-and-events/press-releases/press-release-details/2023/AutoNation-Reports-Second-Quarter-2023-Results/default.aspx

 

 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.