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These 3 Companies are Committed to Increasing Shareholder Value: Which is the best?
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A common way for profitable companies to reward investors and create shareholder value is by distributing excess cash via dividends. Shareholder value, a top priority, can also be established through another strategy that’s surged recently – stock buybacks.
Buybacks simply allow companies to use excess cash to buy shares of their stock. A few of the benefits include tax efficiency, the ability to offset dilution, and directly boosting share prices. It’s an alternate yet more flexible way of returning money to shareholders.
There has been a flurry of buybacks already in 2022, building on 2021’s activity. Let’s look at three companies who recently announced share repurchase programs to increase shareholder value, and analyze the best one worth adding to your portfolio.
Best Buy
Best Buy (BBY - Free Report) is a multinational specialty retailer of consumer electronics, home office products, and communication devices, and this month, it announced a $1.6 billion share buyback program.
In comparison to the S&P 500 over the last year, BBY plunged after its 2022 Q3 earnings. Prior, BBY had a massive run in October and for the majority of November, propelling shares to trade in line with the S&P 500 for a short time. Best Buy’s decline of -10% over this timeframe is far below the S&P 500’s return of 9%. As pictured below, we can see Best Buy's steep decline after its quarterly earnings.
Current and next year estimates account for 14 of the 17 downward revisions that have come in over the last 60 days. There have been ten downward revisions for the current year, decreasing the consensus estimate trend by nearly 6% to $8.97 per share. There’s been a slight 1.5% increase in the trend for next year, forecasting yearly EPS of $10.58.
Image Source: Zacks Investment Research
Earnings for BBY have been solid in the last four reports, ringing in an average surprise of nearly 30%. In its latest quarter, BBY beat estimates by $0.01, chaining together a streak of seventeen consecutive quarterly EPS beats dating back to March 2017. Sales have exceeded estimates in three of its last four quarterly reports; its latest quarter missed expectations by 1.30%.
The company’s forward earnings multiple is currently 11X, much lower than its high of 20.5X in August 2020 and slightly higher than its low of 8X in March 2020. The current value is much lower than the Zacks Retail – Consumer Electronics Market industry which currently boasts a 15.9X P/E.
Image Source: Zacks Investment Research
Colgate
Colgate-Palmolive (CL - Free Report) is a New-York based global leader in the oral hygiene market. Similar to Best Buy, the company’s board recently authorized up to $5 billion in share repurchases.
Colgate-Palmolive shares, up 1.5% over the last year, have lagged behind the S&P 500. The company’s shares broke off from the general market in July of 2021 and continued their descent until December of 2021. Since then, shares have slightly followed in-line with the market and have declined 11% year-to-date compared to the S&P 500’s decline of 10%. The chart below compares the past year's performance.
Image Source: Zacks Investment Research
The consensus estimate trend for the current and next year’s full-year EPS have both decreased over the last 60 days. Six of the seven estimate revisions for the current year were downward, decreasing full-year earnings estimates to $3.33 per share. The trend has seen a smaller decrease (-0.55%) for next year, with three of five estimate revisions being downward and forecasting a yearly EPS of $3.60.
Image Source: Zacks Investment Research
Over the last four quarterly reports, three have been in line with expectations, a common trend for the company. The company’s Q3 was the only time Colgate-Palmolive beat expectations, reporting a quarterly EPS of $0.81 and topping estimates by 2.53%. Q4 sales missed estimates by 0.73%, snapping a streak of eight consecutive revenue beats.
CL has a forward earnings multiple of 22.6X, lower than its high of 28.3X in November of 2020, higher than its COVID-19 low of 19.3X, and a tick higher than its median of 24.4X over the last five years. The value was as low as 22.1X and as high as 24.2X in 2022.
Image Source: Zacks Investment Research
AMZN
Amazon (AMZN - Free Report) , the e-commerce and web service giant, announced a $10 billion share buyback earlier this month.
Amazon’s shares traded sideways for most of 2021 before seeing a sharp downturn this January. The company’s -5.2% return over the last year has not been nearly enough to keep pace with the S&P 500. Year-to-date, shares have traded mostly in line with the market, posting an 8% decline. The chart below compares the past year performances of both names.
Image Source: Zacks Investment Research
Out of the 12 estimate revisions for the current year, seven have been upwards, increasing full-year EPS estimates to $52.22. Nine revisions have hit the tape for next year, with seven of them being upward and increasing estimates to $76.02 per share.
Image Source: Zacks Investment Research
Quarterly earnings for the e-commerce giant have been notably impressive. AMZN has beat estimates in three of its last four quarters, providing a remarkable 167% average earnings surprise. In its latest quarter, the company blew expectations out of the water by reporting EPS of $27.75 and scorching estimates by nearly 620%.
Amazon’s current forward earnings multiple is 59.2X, considerably lower than its high of 285.6X in 2018, much lower than its median of 85.5X, and slightly higher than its low of 53.2X in 2022. AMZN’s P/E is also roughly 11% lower than the industry’s average of 65.9X.
Final Decision
After analyzing three names that have recently executed repurchase programs – Best Buy, Colgate-Palmolive, and Amazon – I believe that Amazon would be the best choice for your portfolio.
The consensus estimate trend was the deciding factor that led me to choose Amazon, the only company out of the group expected to see EPS growth in this fiscal year and next.
Additionally, Amazon has remarkable sales, consistent and robust earnings growth, and is currently trading at attractive valuation levels. Amazon has an overall VGM Score of an A and is a Zacks Rank #3 (Hold).
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These 3 Companies are Committed to Increasing Shareholder Value: Which is the best?
A common way for profitable companies to reward investors and create shareholder value is by distributing excess cash via dividends. Shareholder value, a top priority, can also be established through another strategy that’s surged recently – stock buybacks.
Buybacks simply allow companies to use excess cash to buy shares of their stock. A few of the benefits include tax efficiency, the ability to offset dilution, and directly boosting share prices. It’s an alternate yet more flexible way of returning money to shareholders.
There has been a flurry of buybacks already in 2022, building on 2021’s activity. Let’s look at three companies who recently announced share repurchase programs to increase shareholder value, and analyze the best one worth adding to your portfolio.
Best Buy
Best Buy (BBY - Free Report) is a multinational specialty retailer of consumer electronics, home office products, and communication devices, and this month, it announced a $1.6 billion share buyback program.
In comparison to the S&P 500 over the last year, BBY plunged after its 2022 Q3 earnings. Prior, BBY had a massive run in October and for the majority of November, propelling shares to trade in line with the S&P 500 for a short time. Best Buy’s decline of -10% over this timeframe is far below the S&P 500’s return of 9%. As pictured below, we can see Best Buy's steep decline after its quarterly earnings.
Best Buy Co., Inc. Price and EPS Surprise
Best Buy Co., Inc. price-eps-surprise | Best Buy Co., Inc. Quote
Current and next year estimates account for 14 of the 17 downward revisions that have come in over the last 60 days. There have been ten downward revisions for the current year, decreasing the consensus estimate trend by nearly 6% to $8.97 per share. There’s been a slight 1.5% increase in the trend for next year, forecasting yearly EPS of $10.58.
Image Source: Zacks Investment Research
Earnings for BBY have been solid in the last four reports, ringing in an average surprise of nearly 30%. In its latest quarter, BBY beat estimates by $0.01, chaining together a streak of seventeen consecutive quarterly EPS beats dating back to March 2017. Sales have exceeded estimates in three of its last four quarterly reports; its latest quarter missed expectations by 1.30%.
The company’s forward earnings multiple is currently 11X, much lower than its high of 20.5X in August 2020 and slightly higher than its low of 8X in March 2020. The current value is much lower than the Zacks Retail – Consumer Electronics Market industry which currently boasts a 15.9X P/E.
Image Source: Zacks Investment Research
Colgate
Colgate-Palmolive (CL - Free Report) is a New-York based global leader in the oral hygiene market. Similar to Best Buy, the company’s board recently authorized up to $5 billion in share repurchases.
Colgate-Palmolive shares, up 1.5% over the last year, have lagged behind the S&P 500. The company’s shares broke off from the general market in July of 2021 and continued their descent until December of 2021. Since then, shares have slightly followed in-line with the market and have declined 11% year-to-date compared to the S&P 500’s decline of 10%. The chart below compares the past year's performance.
Image Source: Zacks Investment Research
The consensus estimate trend for the current and next year’s full-year EPS have both decreased over the last 60 days. Six of the seven estimate revisions for the current year were downward, decreasing full-year earnings estimates to $3.33 per share. The trend has seen a smaller decrease (-0.55%) for next year, with three of five estimate revisions being downward and forecasting a yearly EPS of $3.60.
Image Source: Zacks Investment Research
Over the last four quarterly reports, three have been in line with expectations, a common trend for the company. The company’s Q3 was the only time Colgate-Palmolive beat expectations, reporting a quarterly EPS of $0.81 and topping estimates by 2.53%. Q4 sales missed estimates by 0.73%, snapping a streak of eight consecutive revenue beats.
CL has a forward earnings multiple of 22.6X, lower than its high of 28.3X in November of 2020, higher than its COVID-19 low of 19.3X, and a tick higher than its median of 24.4X over the last five years. The value was as low as 22.1X and as high as 24.2X in 2022.
Image Source: Zacks Investment Research
AMZN
Amazon (AMZN - Free Report) , the e-commerce and web service giant, announced a $10 billion share buyback earlier this month.
Amazon’s shares traded sideways for most of 2021 before seeing a sharp downturn this January. The company’s -5.2% return over the last year has not been nearly enough to keep pace with the S&P 500. Year-to-date, shares have traded mostly in line with the market, posting an 8% decline. The chart below compares the past year performances of both names.
Image Source: Zacks Investment Research
Out of the 12 estimate revisions for the current year, seven have been upwards, increasing full-year EPS estimates to $52.22. Nine revisions have hit the tape for next year, with seven of them being upward and increasing estimates to $76.02 per share.
Image Source: Zacks Investment Research
Quarterly earnings for the e-commerce giant have been notably impressive. AMZN has beat estimates in three of its last four quarters, providing a remarkable 167% average earnings surprise. In its latest quarter, the company blew expectations out of the water by reporting EPS of $27.75 and scorching estimates by nearly 620%.
Amazon’s current forward earnings multiple is 59.2X, considerably lower than its high of 285.6X in 2018, much lower than its median of 85.5X, and slightly higher than its low of 53.2X in 2022. AMZN’s P/E is also roughly 11% lower than the industry’s average of 65.9X.
Final Decision
After analyzing three names that have recently executed repurchase programs – Best Buy, Colgate-Palmolive, and Amazon – I believe that Amazon would be the best choice for your portfolio.
The consensus estimate trend was the deciding factor that led me to choose Amazon, the only company out of the group expected to see EPS growth in this fiscal year and next.
Additionally, Amazon has remarkable sales, consistent and robust earnings growth, and is currently trading at attractive valuation levels. Amazon has an overall VGM Score of an A and is a Zacks Rank #3 (Hold).