To compensate for mediocre profit growth forecasts for next year Teva Pharmaceutical (NAS: TEVA) has announced a massive $3 billion buyback to return money to investors. The buyback will probably be completed in three years, and at current prices would buy roughly 8% of the company.
Teva, the world's largest generic pharmaceutical company, has estimated earnings will be between $5.48 and $5.68 a share in 2012. Teva also thinks it may miss its long-term target of $31 billion in sales by 2015, reports Bloomberg. The company reported its first decline in quarterly earnings in four years last month.
"There's a feeling that there needs to be a change in how the Teva management views their relationship with investors," said Natali Gotlieb, a Tel Aviv-based analyst for Israel Brokerage & Investments Ltd. The buyback plan is therefore "very good news."
According to the company no shares will be bought before fourth-quarter earnings are published in February.
Investing ideas -- buybacks
Buybacks, or share repurchases, are when a company purchases its own stock. This puts money in the pockets of shareholders while reducing the number of outstanding shares held by the public. The buying pressure tends to increase the value of the shares, as does the fact that there are now fewer shares outstanding.
Another side effect: Given the decreased number of shares, earnings per share will increase even if profits remain unchanged.
So, are there any other companies that are buying back their own shares? For ideas, we looked at companies that have recently announced significant buy backs of their own shares.
In addition, all of these companies are more profitable than their competitors, based on gross and net profit margins.
These buyback stocks have a track record of being more profitable than their competitors -- does that make their outlook even more bullish?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Zimmer Holdings (NYS: ZMH) : Engages in the design, development, manufacture, and marketing of orthopaedic reconstructive implants, spinal and trauma devices, dental implants, and related surgical products. On 12/19 the company announced a buy back valued at $1.5 Bln. TTM gross margin at 83.55% vs. industry average at 65.64%. TTM operating margin at 28.79% vs. industry average at 14.92%. TTM pre-tax margin at 20.36% vs. industry average at 11.5%.
2. Domtar (NYS: UFS) : Engages in the design, manufacture, marketing, and distribution of uncoated freesheet paper, papergrade, fluff, and specialty pulp products in North America. On 12/15 the company announced a buy back valued at $400 Mln. TTM gross margin at 26.07% vs. industry average at 23.06%. TTM operating margin at 13.19% vs. industry average at 7.59%. TTM pre-tax margin at 9.83% vs. industry average at 5.21%.
3. Packaging Corp. of America (NYS: PKG) : Produces and sells containerboard and corrugated products in the United States. On 12/14 the company announced a buy back valued at $150 Mln. TTM gross margin at 27.65% vs. industry average at 22.83%. TTM operating margin at 11.65% vs. industry average at 9.51%. TTM pre-tax margin at 10.56% vs. industry average at 6.38%.
4. St. Jude Medical (NYS: STJ) : Develops, manufactures, and distributes cardiovascular and implantable neurostimulation medical devices worldwide. On 12/13 the company announced a buy back valued at $300 Mln. TTM gross margin at 79.16% vs. industry average at 65.64%. TTM operating margin at 25.94% vs. industry average at 14.92%. TTM pre-tax margin at 20.46% vs. industry average at 11.5%.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Profitabilitydata sourced from Fidelity.
At the time thisarticle was published The Motley Fool owns shares of Zimmer Holdings, Teva Pharmaceutical Industries, and St. Jude Medical. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.