Public Company Share Repurchase-Cannibals

[FCharlie]

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. 

 

https://investors.autonation.com/news-and-events/press-releases/press-release-details/2024/AutoNation-Reports-Fourth-Quarter-and-Full-Year-Results/default.aspx

[Xerxes]

22 minutes ago, FCharlie said:

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. 

 

https://investors.autonation.com/news-and-events/press-releases/press-release-details/2024/AutoNation-Reports-Fourth-Quarter-and-Full-Year-Results/default.aspx

In contrast Apple has removed gobbs of shares outstanding at 30x earning. 

[Value_Added]

Seems GTX may fit here now with their recent capital restructuring (now a single share class).  Tons of cash flow with minimal reinvestment needs, they seem hellbent on paying off debt and buying back stock.  They bought back 10% of their shares in 2023 and approved another 15% (at current prices) for 2024.  I don’t see why this wouldn’t continue going forward. Business is in a good position too from both a turbo standpoint and zero emission vehicle (battery and hydrogen fuel cell) standpoint.  Seems like the focus switch to hybrids could be a small tailwind for their core turbo business as well.  

[winjitsu]

On 2/13/2024 at 8:13 AM, FCharlie said:

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. 

 

https://investors.autonation.com/news-and-events/press-releases/press-release-details/2024/AutoNation-Reports-Fourth-Quarter-and-Full-Year-Results/default.aspx

@FCharlie how are you getting 6-7x P/E here? Showing 16-17x on TIKR and my quick glance at the Q is in the same ballpark.

[Spekulatius]

2 hours ago, winjitsu said:

@FCharlie how are you getting 6-7x P/E here? Showing 16-17x on TIKR and my quick glance at the Q is in the same ballpark.

You must be looking at a different stock then. $AN last quarterly earnings were $5.04/ share and 2024 consensus forecast is for $19.3/ share which at $143 is a 7.4x PE.

[winjitsu]

52 minutes ago, Spekulatius said:

You must be looking at a different stock then. $AN last quarterly earnings were $5.04/ share and 2024 consensus forecast is for $19.3/ share which at $143 is a 7.4x PE.

Yes, I was looking at Autozone 

[Spekulatius]

2 hours ago, winjitsu said:

Yes, I was looking at Autozone 

For a cannibal to work, you need a cheap stock with a low earnings multiple not an expensive one. The best case scenario is that your cheap cannibal becomes an expensive compounder but then the buyback magic really doesn’t now worth any more - see AZO or AAPL.

[Hektor]

On 9/19/2023 at 3:13 PM, Spekulatius said:

$DFS is one I am buying now, even though they are not buying back shares right now, due to regulatory overhang. They are down to 253M shares, which is less than half what they had a decade ago:

Capital One is Buying Discover Financial, Sources Say
 

A deal could be announced as soon as Tuesday, according to people familiar with the matter. Discover has a market value of nearly $28 billion, and the takeover would be expected to value it at a premium to that.

 

 

https://www.wsj.com/finance/capital-one-is-buying-discover-financial-sources-say-a7c43dd2?mod=mhp

[Spekulatius]

27 minutes ago, Hektor said:

Capital One is Buying Discover Financial, Sources Say
 

A deal could be announced as soon as Tuesday, according to people familiar with the matter. Discover has a market value of nearly $28 billion, and the takeover would be expected to value it at a premium to that.

 

 

https://www.wsj.com/finance/capital-one-is-buying-discover-financial-sources-say-a7c43dd2?mod=mhp

Now that’s an development I did not expect, although a deal makes sense as there are quite a few synergies. I don’t think COF can afford to pay cash, so I think the deal is either stock for stock or stock and cash.

Edited February 19 by Spekulatius

[Hektor]

How do you see this combination having an impact, if any, on V/MA/AMX?

[Xerxes]

On 2/17/2024 at 9:37 AM, Spekulatius said:

For a cannibal to work, you need a cheap stock with a low earnings multiple not an expensive one. The best case scenario is that your cheap cannibal becomes an expensive compounder but then the buyback magic really doesn’t now worth any more - see AZO or AAPL.

that is interesting. 

both AutoZone and AutoNation have “hockey-sticked”, but one has 7x earning multiple while the other has 17x multiple. (Respectively)
 

Diminishing return for AZ and prolonged hockey-sticking return for AN ? … Or simply put, the car part business (AZ) is more valuable than the second hand car business (AN). 

 

AZ: eddy steady auto part sales 

AN: cyclical auto retail 
 

Perhaps AZ is worth more than AN even if the note has lofty multiple. 

Edited February 20 by Xerxes

[FCharlie]

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. 

 

[Hektor]

8 hours ago, Spekulatius said:

I don’t think COF can afford to pay cash, so I think the deal is either stock for stock

Good call

[Dalal.Holdings]

A great business getting acquired by a much worse one that's also much more vulnerable to economic shocks...

 

 

Edited February 20 by Dalal.Holdings

[Xerxes]

3 hours ago, FCharlie said:

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. 

 

thank you @FCharlie
this is very helpful.  

[changegonnacome]

41 minutes ago, Dalal.Holdings said:

A great business getting acquired by a much worse one that's also much more vulnerable to economic shocks...

 

 

 

Perhaps - but watch what happens to COF's legacy book of business from an RoE perspective as its domestic focused card portfolio (i.e. non premium travel cards) get transitioned from MasterCard/Visa's authorization network to Discovers (soon to be Capital One's captive one). It's a game changer for an issuer of COF's scale to vertically integrate with an authorization network and start collecting swipe fees. 

[Dalal.Holdings]

3 hours ago, changegonnacome said:

 

Perhaps - but watch what happens to COF's legacy book of business from an RoE perspective as its domestic focused card portfolio (i.e. non premium travel cards) get transitioned from MasterCard/Visa's authorization network to Discovers (soon to be Capital One's captive one). It's a game changer for an issuer of COF's scale to vertically integrate with an authorization network and start collecting swipe fees. 

COF will have to shift its customer FICO profile to achieve high returns. But yeah the DFS assets are potent and as a DFS shareholder I think totally being undervalued

[changegonnacome]

8 hours ago, Dalal.Holdings said:

COF will have to shift its customer FICO profile to achieve high returns

 

Maybe - but that's their niche in a way and I see the DFS acquisition as an acknowledgment that there isnt much market maneuvering left for them moving across FICO scores....the high ground is occupied by AMEX + Chase + various premium offerings....the low ground Synchrony etc....COF stepped into this nice niche above sub-prime but below prime and grew the hell out of it....in a credit business they are limits to profitable growth (of course there are no limits to unprofitable growth) ......with DFS they've instantly made their current domestic focused book of business much a higher RoE proposition by adding delicious capital light & credit risk free swipe revenue.

[ValueArb]

Just came across Apogee Enterprises (APOG). A "leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used in applications for preservation, protection and enhanced viewing".  Last decade has grown revenues at a decent clip (7%), while growing profits at a higher rate (10% ish). Dividend yield close to 2% while it has retired about a quarter of its shares over the last 6 years.

 

This doesn't meet my purchase criteria (its not a net-net) so I stopped my research there, but mr market is offering it at a 10 PE for those who like this kind of thing.

 

[gfp]

7 minutes ago, ValueArb said:

 

 

This doesn't meet my purchase criteria (its not a net-net) so I stopped my research there, but mr market is offering it at a 10 PE for those who like this kind of thing.

 

 

Is this a cry for help?  Do you need a Charlie to lift the scales from your eyes?

Edited February 27 by gfp

[gfp]

in other "cannibal" news, eBay just reported a decent quarter and another $250m repurchase -

https://www.prnewswire.com/news-releases/ebay-inc-reports-fourth-quarter-and-full-year-2023-results-302073214.html

[cubsfan]

15 minutes ago, gfp said:

in other "cannibal" news, eBay just reported a decent quarter and another $250m repurchase -

https://www.prnewswire.com/news-releases/ebay-inc-reports-fourth-quarter-and-full-year-2023-results-302073214.html

 

Gregmal knows how to pick 'em

[ValueArb]

1 hour ago, gfp said:

 

Is this a cry for help?  Do you need a Charlie to lift the scales from your eyes?

After Charlie lifted the scales from Warrens eyes, Warrens annualized returns declined significantly and permanently, so no thank you.

[WayWardCloud]

2 hours ago, ValueArb said:

"leading provider of architectural products and services for enclosing buildings, and high-performance glass and acrylic products used in applications for preservation, protection and enhanced viewing"

 

So... they make doors and windows?

[Malmqky]

55 minutes ago, ValueArb said:

After Charlie lifted the scales from Warrens eyes, Warrens annualized returns declined significantly and permanently, so no thank you.

 

Oh come on, returns would have declined regardless due to Berkshires size.

 

Although that kind of proves your point (I assume you don't manage billions).