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Anadarko's (APC) $2.5B Share Buyback Raises Shareholder Value

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Anadarko Petroleum Corp.‘s board of directors recently authorized a share buyback program to increase value of investors.

The share authorization will allow the company to spend up to $2.5 billion to repurchase its common stock, approximately 10% of its outstanding shares at current prices and extend through the end of 2018.

Technically share repurchases benefit the company’s earnings per share, and book value as shares outstanding decrease. Consequently, these programs raise optimism among investors and boost their confidence on the stock. As such, the decision of a buyback program reflects the company’s aim to increase value of shareholders keeping in view market conditions.

The company has a strong balance sheet position with $6 billion in form of cash as of Jun 30. Anadarko’s retained earnings as of Jun 30 was $887 million and the company will utilize the same for repurchase of shares. The company expects to spend approximately $1 billion by December 2017 and the remaining $1.5 billion by the end of 2018, on share buybacks.

Despite Anadarko Petroleum’s disappointing performance in the second quarter, the company remains on track to get the most out of its premium shale properties, the Delaware and Denver-Julesburg basins, and the Deepwater Gulf of Mexico (GOM). These properties are expected to provide some momentum to sales volume, margin and cash flow numbers, moving forward.

In addition to domestic assets, the company’s international assets are also yielding positive results. During the second quarter, the company increased sales volume by 25% year over year. New discoveries and existing Columbian assets will boost performance.

The company’s investment plan is anticipated to produce substantial free cash flow, while its midstream investments should suffice for better performance going forward.

Price Movement

Anadarko Petroleum has lost 20.5% in the last 12 months compared with 24% decline of its industry.

Notably, the industry Anadarko Petroleum belongs to was adversely impacted by substantial drop in the commodity prices.

Zacks Rank & Key Picks

Anadarko Petroleum currently carries a Zacks Rank #3 (Hold). Investors can consider better-ranked stocks from the sector such as JA Solar Holdings, Co., Ltd. , SolarEdge Technologies, Inc. (SEDG - Free Report) and Vermilion Energy Inc. (VET - Free Report) each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

JA Solar delivered an average earnings surprise of 716.7% in the trailing four quarters. Its 2017 estimates have narrowed by 6000% to 61 cents in the last 90 days.

SolarEdge delivered an average surprise of 21.7% in the trailing four quarters. Its 2017 estimates have risen by 32.4% to $1.88 per share in the last 90 days.

Vermilion Energy delivered an average surprise of 528.6% in the trailing four quarters. Its 2017 estimates have risen by 38.5% to 72 cents per share in the last 90 days.

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