A highlight of every earnings season is the announcement of share buybacks. A share buyback is a corporate finance action in which a company repurchases an amount of the shares available in the market.
The impact of a share buyback is generally bullish based on supply and demand. That is, when the number of a company's outstanding shares available goes down, the company's earnings per share (EPS) will increase. As earnings increase, investors may buy the stock in anticipation of it moving higher.
Should you invest in a company that issues a stock buyback? Generally speaking, a stock buyback shouldn't be the only reason you buy any stock. Ideally, you want to see a company offering a buyback because they have excess cash after appropriate capital expenditures (capex) to grow the business. You also want a company with a history of delivering earnings and stock price growth that outpaces the market average.
In this special presentation, we highlight seven stocks investors should consider buying after the company announces stock buybacks.
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- Apple
- Chevron
- Adobe
- Monster Beverage
- Tractor Supply Company
- UnitedHealth Group
- Ulta Beauty
#1 - Apple (NASDAQ:AAPL)
Apple Inc. (NASDAQ: AAPL) announced a $110 billion share buyback program when it delivered its first-quarter earnings in May 2024. At first glance, the size of the buyback is hard to overlook. But this isn’t Apple’s first rodeo when it comes to buying back its shares. In past programs, the company has authorized up to $90 billion. It’s also important to note that Apple hasn’t always repurchased the full amount of the buyback authorization.
Despite concerns about iPhone sales, particularly in China, analysts still believe Apple will grow earnings in the high single digits at around 8.8%. Earnings could go much higher if Apple successfully launches its artificial intelligence (AI) strategy as expected.
Apple’s latest 12-month buyback yield is 3.1%. The buyback yield is a ratio that measures the net repurchase of outstanding shares relative to the company’s market cap. Apple also offers a dividend that yields 0.54% and has been increasing for 12 consecutive years. The AAPL stock price has jumped 272% in the last five years.
About Apple
Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
Read More - Current Price
- $254.49
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $236.78 (7.0% Downside)
#2 - Chevron (NYSE:CVX)
Chevron Corporation (NYSE: CVX) announced a $75 billion share buyback program in January 2023. Like Apple, Chevron is no stranger to buyback programs. Due to the industry's cyclical nature, oil companies frequently find themselves in periods where they need to put extra cash to good use. And that cash is significant because Chevron is financing the buyback with cash, not debt.
It's also helpful to remember that the price of oil was around $50 at the time Chevron announced the buyback program. It's now hovering around $80, with many experts expecting it to move higher. Higher oil prices are a good predictor of earnings and stock price growth.
Analysts are forecasting 14.2% earnings growth in the next 12 months. CVX stock has increased by 34.1% in the last five years. In addition to the buyback program, Chevron increased its dividend for the 37th consecutive year in February 2024.
About Chevron
Chevron Corporation, through its subsidiaries, engages in the integrated energy and chemicals operations in the United States and internationally. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification of liquefied natural gas; transportation of crude oil through pipelines; transportation, storage, and marketing of natural gas; and carbon capture and storage, as well as a gas-to-liquids plant.
Read More - Current Price
- $142.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $175.19 (22.6% Upside)
#3 - Adobe (NASDAQ:ADBE)
When Adobe Inc. (NASDAQ: ADBE) announced a $25 billion share buyback program in March 2024, it was supposed to stop the bleeding in ADBE stock, which was down 11% for the year at the time of the announcement. So far, that hasn’t happened as the stock is now down 18% in 2024. However, the stock appears to be building a base of support that could make for an attractive buying opportunity.
A key reason for that is valuation. At a time when other tech stocks look overvalued, Adobe is trading at a discount. This is despite the company being the market share leader in the graphics software market with 42%. And that goes along with the company’s 59% market share in the computer market.
The Adobe analyst ratings on MarketBeat still show a $620 consensus price target, which is an upside of over 28% from the stock’s current price. ADBE stock has a buyback yield of 2.16%. Despite the recent pullback, the stock is up 73.6% in the last five years.
About Adobe
Adobe Inc, together with its subsidiaries, operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising. The Digital Media segment offers products, services, and solutions that enable individuals, teams, and enterprises to create, publish, and promote content; and Document Cloud, a unified cloud-based document services platform.
Read More - Current Price
- $447.17
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $584.88 (30.8% Upside)
#4 - Monster Beverage (NASDAQ:MNST)
Monster Beverage Corporation (NASDAQ: MNST) announced a $3 billion share buyback program in May 2024. The buyback size isn’t particularly significant, and the company’s buyback yield is just 0.74%.
However, after pulling back by over 4% to start the year, management is making a statement about where they see the future direction of the stock. MNST stock has been one of the best-performing stocks in the last five years. Despite the recent pullback, it’s still up 74.7% in the last five years.
There are concerns about valuation. Monster trades at around 30x forward earnings. That’s consistent with its historical average but is still a premium to the consumer staples sector.
Monster’s recent earnings report hasn’t necessarily justified that premium valuation. However, analysts maintain a Moderate Buy rating on MNST stock and are forecasting 13.4% earnings upside in the next 12 months.
About Monster Beverage
Monster Beverage Corporation, through its subsidiaries, engages in development, marketing, sale, and distribution of energy drink beverages and concentrates in the United States and internationally. The company operates through three segments: Monster Energy Drinks, Strategic Brands, Alcohol Brands, and Other.
Read More - Current Price
- $51.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $56.30 (8.9% Upside)
#5 - Tractor Supply Company (NASDAQ:TSCO)
Tractor Supply Company (NASDAQ: TSCO) may get overlooked among retail stocks. But when it comes to rewarding shareholders, the specialty retailer is in a class of its own. The company has been buying back shares since 2007. And in 2023, the company repurchased 2.7 million shares for a total of $597 million. It also paid dividends totaling $449.6 million during the year.
It’s not surprising, then, that TSCO stock has been up a whopping 161.8% in the last five years. Yet despite that growth, the stock still looks attractive at around 25.8 forward earnings. The company’s buyback yield is 2.4% and goes along with a dividend yield that is currently at 1.64%. Tractor Supply has also increased its dividend for 15 consecutive years.
Analysts have a Moderate Buy rating on TSCO stock in the short term. However, the consensus price target is 5% below the stock’s closing price on May 9, 2024. That suggests a pullback may be coming, but that would be an attractive entry point for investors who have been on the sidelines.
About Tractor Supply
Tractor Supply Company operates as a rural lifestyle retailer in the United States. The company offers various merchandise, including livestock and equine feed and equipment, poultry, fencing, and sprayers and chemicals; food, treats, and equipment for dogs, cats, and other small animals, as well as dog wellness products; seasonal and recreation products comprising tractors and riders, lawn and garden, bird feeding, power equipment, and other recreational products; truck, tool, and hardware products, such as truck accessories, trailers, generators, lubricants, batteries, and hardware and tools; and clothing, gift, and décor products consist of clothing, footwear, toys, snacks, and decorative merchandise.
Read More - Current Price
- $53.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $57.98 (7.5% Upside)
#6 - UnitedHealth Group (NYSE:UNH)
UnitedHealth Group International (NYSE: UNH) is one of the leading healthcare and health insurance companies in the United States. The company announced a $3 billion share buyback program in March 2024. But this is just a continuation of a series of buyback initiatives taken by the company.
UNH stock is down about 4% in 2024 but has been rallying since its earnings report in April. The stock is up 9% after the company posted revenue and earnings that beat expectations and were higher year-over-year. The company has also had to deal with the fallout from a cyberattack, but that appeared to be not as bad as feared.
Analysts maintain a Moderate Buy rating for UNH stock and have a consensus price target of approximately $570. UNH has a buyback yield of 1.8% and a dividend yield of 1.42%.
About UnitedHealth Group
UnitedHealth Group Incorporated operates as a diversified health care company in the United States. The company operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage, and health and well-being services to individuals age 50 and older addressing their needs; Medicaid plans, children's health insurance and health care programs; and health and dental benefits, and hospital and clinical services, as well as health care benefits products and services to state programs caring for the economically disadvantaged, medically underserved, and those without the benefit of employer-funded health care coverage.
Read More - Current Price
- $500.13
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $626.84 (25.3% Upside)
#7 - Ulta Beauty (NASDAQ:ULTA)
Ulta Beauty Inc. (NASDAQ: ULTA) announced a $2 billion share buyback program in March 2024. That’s exactly two years after the company announced a buyback of the same amount in 2022.
The company is the largest specialty beauty retailer in the United States. The company’s rapid growth and success are due, in part, to its world-class loyalty program, which had approximately 43 million members at the end of 2023. Ulta also leverages omnichannel opportunities with retailers such as Target Corporation (NYSE: TGT) to stay top-of-mind with its customers.
Ulta has been a recovery stock since crashing hard in 2020. ULTA stock was up approximately 60% in the last five years, heading into its quarterly earnings report in March 2024. Despite a double beat, the stock fell sharply on weak guidance for the first quarter of its FY2024. The company is also planning to launch operations in Mexico, but it seems analysts were hoping for more specifics than what the company offered.
About Ulta Beauty
Ulta Beauty, Inc operates as a specialty beauty retailer in the United States. The company offers branded and private label beauty products, including cosmetics, fragrance, haircare, skincare, bath and body products, professional hair products, and salon styling tools through its Ulta Beauty stores, shop-in-shops, Ulta.com website, and its mobile applications.
Read More - Current Price
- $430.01
- Consensus Rating
- Hold
- Ratings Breakdown
- 11 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $439.30 (2.2% Upside)
One final note about share buybacks. The dollar amount companies announce is not always the actual amount they buy back. You'll typically hear language like “authorized to buy back up to ..." which means the company's board of directors gave the company the right, but not the obligation, to buy back up to the announced amount. In some cases, a company won't buy back the entire amount authorized.
Share buybacks are one way a company rewards shareholders and boosts its share price. However, it shouldn't be the only reason you consider owning a stock. You'll want to ensure the company is still growing revenue and, more importantly, earnings.
MarketBeat has a free tool that keeps investors updated on the companies that have issued share buybacks within the current calendar year. The tool also retains a list of share buyback announcements from the prior year.
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