Share buybacks are increasingly becoming an important tool for corporate America to enhance their earnings per share by reducing the share count. Citing data compiled by Birinyi Associates, Bloomberg stated that U.S. companies announced share buybacks worth $1.26 trillion in 2022, up 3% from the prior year. The companies executed 82% of this amount last year, bringing the money spent on buybacks in 2022 to $1.03 trillion.
The threat of a looming recession and the 1% tax on buybacks that will become effective this year have not deterred big companies from buying back their shares. In January 2023, buybacks announced by companies more than tripled year-over-year to $132 billion. While the amount has surged, fewer companies have announced buybacks compared to January 2022.
Aside from bringing down the share count, buybacks are often considered as a signal that the management believes that shares are undervalued given the future growth potential of the company. They are also used to offset the impact of share dilution due to stock-based compensation.
Let’s take a look at three companies that recently announced significant buyback plans.
Chevron (NYSE:CVX)
Energy giant Chevron (NYSE:CVX) accounted for a major portion of the overall buybacks announced in January 2023. The company’s adjusted earnings more than doubled to $36.5 billion in 2022, thanks to elevated oil and gas prices due to the Russia-Ukraine war and robust demand.The company used the robust cash flows generated last year to enhance shareholder returns through dividends and share buybacks.
Ahead of the Q4 results, Chevron announced a massive $75 billion share repurchase plan that would become effective April 1, 2023 (with no fixed expiration date) and replace the previous repurchase authorization of $25 billion at the end of Q1 2023. Chevron repurchased about 70 million shares for $11.25 billion in 2022.
Nonetheless, the announcement was panned by the Biden administration, which has been heavily criticizing oil companies for using profits to increase shareholder returns rather than bringing down prices at the pump. “For a company that claimed not too long ago that it was ‘working hard’ to increase oil production, handing out $75 billion to executives and wealthy shareholders sure is an odd way to show it,” said the White House in a statement.
Is CVX a Buy, Sell, or Hold?
Wall Street’s Hold consensus rating for Chevron is based on six Buys, eight Holds, and two Sells. The average CVX stock price target of $189.57 implies 10% upside potential.
Exxon (NYSE:XOM)
President Joe Biden has often slammed Exxon Mobil (NYSE:XOM) for using the record profits it earned last year to boost dividends and repurchases instead of increasing production to bring down oil prices. Exxon generated $59.1 billion in adjusted earnings, an increase of 157% over the previous year.
Exxon distributed $14.9 billion in dividends and made $14.9 billion worth share repurchases in 2022. In late 2022, Exxon expanded its share repurchase program up to $50 billion through 2024 from $35 billion. The expanded program includes the shares repurchased in 2022.
What is the Target Price for Exxon Stock?
Wall Street is cautiously optimistic about Exxon, with a Moderate Buy consensus rating based on 10 Buys, seven Holds, and one Sell. The average XOM stock price target of $124.88 indicates 7.3% upside potential.
Meta Platforms (NASDAQ:META)
Meta Platforms (NASDAQ:META) has been under pressure due to a slowdown in ad spending amid macro headwinds, rising competition from ByteDance’s TikTok, and Apple’s (NASDAQ:AAPL) iOS privacy policy changes. Despite tough business conditions, Meta bought back $27.9 billion worth shares in 2022.
The company has now increased its share buyback plan by $40 billion despite having $10.87 billion remaining under its previous buyback authorization.
Is Meta Platforms a Buy?
Wall Street’s Strong Buy consensus rating for Meta Platforms breaks down into 34 Buys, six Holds, and two Sells. At $215.20, the average Meta stock price target implies nearly 20% upside potential from current levels.
Conclusion
Investors often welcome buybacks for the various advantages we discussed before. Nonetheless, they should bear in mind that many companies use buybacks to superficially enhance earnings, as executive compensations are often tied to profitability. Additionally, buybacks can be used to boost share price over the short term.
