Companies Investing Right Along With You
Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll find a few companies that announced new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce share repurchase programs over the last month:
CAPS Rating (out of 5)
New or Expanded
|HollyFrontier (NYS: HFC)||*****||$350 million||Expanded|
|Quest Diagnostics (NYS: DGX)||***||$1.0 billion||Expanded|
But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself, rather use it as a launching pad for additional research.
A refined opportunity
It was just four months ago that oil refiner HollyFrontier announced it was buying back up to $100 million worth of its stock, and now it has more than tripled the repurchase program, to $350 million. And since the merger of Holly and Frontier last July, it has also paid out two regular dividends and declared two special dividends totaling $250 million. Management, apparently, is keen on shoveling value back to shareholders.
Last week the Fool's Isac Simon noted HollyFrontier was an incredibly cheap refiner considering the margin expansion it enjoyed as a result of buying feedstock below the current Brent-WTI spread thanks to picking up geographically well-placed refineries from Frontier and Sunoco. And now that President Obama has pushed back the Keystone XL pipeline, HollyFrontier, Valero Energy (NYS: VLO) , and other refiners should benefit as the spread widens once again. But with HollyFrontier's cheaper WTI sweet crude oil it stands to reason it will gain all the more.
These inexorable forces running in its favor lead me to rate it on CAPS to outperform the broad market indexes. Nearly 700 members already weighed in on the refiner and 95% of them believe it will be able to beat the Street. But refine your thoughts on the HollyFrontier CAPS page or in the comments section below then add the refiner to your Watchlist to follow whether the share price rises the wider the spread grows.
Clinical testing outfits Quest Diagnostics and LabCorp (NYS: LH) are both racing ahead to gain the upper hand in gene testing and esoteric testing by growing the respective businesses organically and through acquisitions.
Quest recently purchased Athena Diagnostics and Celera to strengthen its position while LabCorp was out scooping up Orchid Cellmark and Westcliff Medical Labs. But economic uncertainty is weighing on organic growth for both testing specialists. In its analyst-beating performance yesterday, Quest said consolidated revenues rose 3% year-over-year, but acquisitions contributed 3.2% to the gain, meaning organic growth actually fell. Previously LapCorp has been reported lower percentage gains each quarter as well.
Guidance was flat for Quest and came in lower than analyst forecasts, but CAPS members remain bullish about its prospects with 94% of those rating it seeing it as one to test the market's ability to stay ahead. At 13 times forward earnings estimates, the stock would seem cheap, but compared to its growth prospects it looks to be trading at a premium. LabCorp provides on a slightly better outlook, suggesting the market believes this niche deserves a higher valuation.
Tell us on the Quest Diagnostic CAPS page if you think it will test new highs, then go add it to your Watchlist to see how it plays out.
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Laboratory Corp of America Holdings and Quest Diagnostics. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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