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We performed a DuPont analysis of the Return on Equity (ROE) of about 120 U.S. firms that have announced significant stock repurchases within the last few months. From this analysis, 25 companies emerged with favorable results. We broke the ROE equation into three parts:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

All of the stocks mentioned below have seen rising ROE values for the recent quarter, year-over-year. Then we wanted to analyze the sources of these returns, so we narrowed down the original universe to only focus on companies with the following characteristics:

  • Decreasing leverage, i.e. decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e. declining Sales/Assets ratio) and improving net profit margin (i.e. declining Net Income/Sales ratio)

When companies buy back their own stock as in a stock repurchase, the company is using excess cash to reduce the number of shares outstanding, which directly increases earnings per share and (at least theoretically) adds value for shareholders.

Do you trust the sources of earnings for these companies? Read below, using this list as a starting-off point for your own analysis.

ROE data sourced from Google Finance, all other data sourced from Finviz.

click for expanded image

The list has been sorted by the increase in ROE. Note: All ratios compare the most recent quarter's values against last year's corresponding quarter.

1. Williams-Sonoma Inc. (NYSE:WSM): Home Furnishing Stores Industry. Market cap of $4.15B. On 2/01/11 the company announced a buyback of $125M (representing 3.01% of market cap). Return on Equity increased from 7.30% to 9.01%. When analyzing the sources of return, Net Profit Margin increased from 8.11% to 9.49%. Sales/Assets increased from 0.5241 to 0.5608, while Assets/Equity decreased from 1.7161 to 1.6934. WSM is exhibiting strong upside momentum--currently trading 6.47% above its SMA20, 10.95% above its SMA50, and 24.87% above its SMA200. The stock has had a good month, gaining 10.57%.

2. Tiffany & Co. (NYSE:TIF): Jewelry Stores Industry. Market cap of $7.58B. On 1/20/11 the company announced a buyback of $400M (representing 5.27% of market cap). Return on Equity increased from 7.45% to 8.32%. When analyzing the sources of return, Net Profit Margin increased from 14.30% to 16.46%. Sales/Assets increased from 0.2813 to 0.2948, while Assets/Equity decreased from 1.8523 to 1.7156. The stock has gained 29.34% over the last year.

3. Cirrus Logic Inc. (NASDAQ:CRUS): Semiconductor Industry. Market cap of $1.43B. On 11/04/10 the company announced a buyback of $80M (representing 5.59% of market cap). Return on Equity increased from 5.65% to 8.24%. When analyzing the sources of return, Net Profit Margin increased from 16.96% to 25.75%. Sales/Assets increased from 0.2666 to 0.2717, while Assets/Equity decreased from 1.2502 to 1.1785. After a solid performance over the last year, CRUS has pulled back during recent sessions. The stock is 3.58% below its SMA20 and 2.79% below its SMA50, but remains 19.37% above its SMA200.

4. DeVry, Inc. (NYSE:DV): Education & Training Services Industry. Market cap of $3.78B. On 11/10/10 the company announced a buyback of $50M (representing 1.32% of market cap). Return on Equity increased from 6.93% to 6.99%. When analyzing the sources of return, Net Profit Margin increased from 15.32% to 16.09%. Sales/Assets increased from 0.2840 to 0.3006, while Assets/Equity decreased from 1.5938 to 1.4451. Risk-averse investors may appreciate that DV has a relatively low correlation to the market (beta = 0.57). The stock has gained 6.66% over the last week.

5. Avery Dennison Corporation (NYSE:AVY): Paper & Paper Products Industry. Market cap of $4.40B. On 2/02/11 the company announced a buyback of 5 M shares (representing 4.68% of market cap based on current prices). Return on Equity increased from 3.66% to 6.94%. When analyzing the sources of return, Net Profit Margin increased from 3.28% to 6.98%. Sales/Assets increased from 0.3042 to 0.3210, while Assets/Equity decreased from 3.6715 to 3.0986. The stock has gained 18.97% over the last year.

6. Consolidated Graphics, Inc. (NYSE:CGX): Business Services Industry. Market cap of $570.09M. On 11/03/10 the company announced a buyback of $50M (representing 8.77% of market cap). Return on Equity increased from 4.32% to 5.84%. When analyzing the sources of return, Net Profit Margin increased from 4.14% to 5.87%. Sales/Assets increased from 0.3757 to 0.4120, while Assets/Equity decreased from 2.7784 to 2.4148. The stock has gained 12.36% over the last year.

7. DPL Inc. (NYSE:DPL): Diversified Utilities Industry. Market cap of $3.13B. On 10/28/10 the company announced a buyback of $200M (representing 6.39% of market cap). Return on Equity increased from 4.44% to 5.76%. When analyzing the sources of return, Net Profit Margin increased from 12.31% to 15.23%. Sales/Assets increased from 0.1113 to 0.1231, while Assets/Equity decreased from 3.2434 to 3.0718. The stock is a short squeeze candidate, with a short float at 5.43% (equivalent to 8.89 days of average volume). The stock has gained 3.84% over the last year.

8. Amphenol Corporation (NYSE:APH): Diversified Electronics Industry. Market cap of $9.57B. On 1/26/11 the company announced a buyback of 20 M shares (representing 11.37% of market cap based on current prices). Return on Equity increased from 5.02% to 5.65%. When analyzing the sources of return, Net Profit Margin increased from 11.56% to 13.80%. Sales/Assets increased from 0.2356 to 0.2365, while Assets/Equity decreased from 1.8437 to 1.7303. The stock has gained 31.35% over the last year.

9. Markel Corp. (NYSE:MKL): Property & Casualty Insurance Industry. Market cap of $3.90B. On 12/01/10 the company announced a buyback of $200M (representing 5.12% of market cap). Return on Equity increased from 3.37% to 4.42%. When analyzing the sources of return, Net Profit Margin increased from 16.93% to 22.90%. Sales/Assets increased from 0.0538 to 0.0565, while Assets/Equity decreased from 3.6916 to 3.4134. The stock has gained 7.96% over the last year.

10. The E. W. Scripps Company (NYSE:SSP): Newspapers Industry. Market cap of $562.39M. On 10/25/10 the company announced a buyback of $75M (representing 13.34% of market cap). Return on Equity increased from 2.81% to 4.35%. When analyzing the sources of return, Net Profit Margin increased from 6.16% to 11.64%. Sales/Assets increased from 0.2499 to 0.2661, while Assets/Equity decreased from 1.8292 to 1.4052. This is a risky stock that is significantly more volatile than the overall market (beta = 2.58). The stock has had a couple of great days, gaining 5.02% over the last week.

11. Time Warner Cable Inc. (NYSE:TWC): CATV Systems Industry. Market cap of $25.14B. On 11/04/10 the company announced a buyback of $4 B (representing 15.91% of market cap). Return on Equity increased from 3.71% to 4.26%. When analyzing the sources of return, Net Profit Margin increased from 7.11% to 8.16%. Sales/Assets increased from 0.1037 to 0.1048, while Assets/Equity decreased from 5.0310 to 4.9752. The stock has gained 42.14% over the last year.

12. Employers Holdings, Inc. (NYSE:EIG): Property & Casualty Insurance Industry. Market cap of $782.48M. On 11/03/10 the company announced a buyback of $100M (representing 12.78% of market cap). Return on Equity increased from 2.26% to 4.11%. When analyzing the sources of return, Net Profit Margin increased from 10.09% to 17.79%. Sales/Assets increased from 0.0303 to 0.0326, while Assets/Equity decreased from 7.3769 to 7.1005. The stock has gained 32.42% over the last year.

13. Education Management Corporation (NASDAQ:EDMC): Education & Training Services Industry. Market cap of $1.58B. On 12/08/10 the company announced a buyback of $100M (representing 6.33% of market cap). Return on Equity increased from 1.05% to 3.96%. When analyzing the sources of return, Net Profit Margin increased from 3.09% to 11.05%. Sales/Assets increased from 0.1539 to 0.1724, while Assets/Equity decreased from 2.2032 to 2.0810. Short float at 6.84% (equivalent to 18.47 days of average volume), implying the stock is a short squeeze candidate.

14. Fidelity National Financial, Inc. (NYSE:FNF): Surety & Title Insurance Industry. Market cap of $3.09B. On 1/27/11 the company announced a buyback of 5 M shares (representing 2.23% of market cap based on current prices). Return on Equity increased from 2.08% to 3.82%. When analyzing the sources of return, Net Profit Margin increased from 4.76% to 8.14%. Sales/Assets increased from 0.1834 to 0.2037, while Assets/Equity decreased from 2.3856 to 2.3015. The stock has lost 2.41% over the last year.

15. Healthways Inc. (NASDAQ:HWAY): Specialized Health Services Industry. Market cap of $521.68M. On 10/21/10 the company announced a buyback of $60M (representing 11.50% of market cap). Return on Equity increased from 1.99% to 3.61%. When analyzing the sources of return, Net Profit Margin increased from 4.29% to 7.96%. Sales/Assets increased from 0.1986 to 0.2267, while Assets/Equity decreased from 2.3388 to 2.0000. The stock is a short squeeze candidate, with a short float at 6.16% (equivalent to 8.94 days of average volume). The stock has had a good month, gaining 13.72%.

16. Visa, Inc. (NYSE:V): Business Services Industry. Market cap of $51.38B. On 10/27/10 the company announced a buyback of $1 B (representing 1.95% of market cap). Return on Equity increased from 3.25% to 3.46%. When analyzing the sources of return, Net Profit Margin increased from 38.93% to 39.50%. Sales/Assets increased from 0.0618 to 0.0658, while Assets/Equity decreased from 1.3512 to 1.3308. The stock has lost 19.55% over the last year.

17. Computer Sciences Corporation (NYSE:CSC): Information Technology Services Industry. Market cap of $7.63B. On 12/13/10 the company announced a buyback of $1 B (representing 13.11% of market cap). Return on Equity increased from 3.19% to 3.38%. When analyzing the sources of return, Net Profit Margin increased from 5.34% to 6.04%. Sales/Assets increased from 0.2441 to 0.2544, while Assets/Equity decreased from 2.4462 to 2.1984. The stock has lost 8.55% over the last year.

18. Pfizer Inc. (NYSE:PFE): Drug Manufacturer. Market cap of $162.70B. On 2/01/11 the company announced a buyback of $5 B (representing 3.07% of market cap). Return on Equity increased from 0.85% to 3.29%. When analyzing the sources of return, Net Profit Margin increased from 4.64% to 16.46%. Sales/Assets increased from 0.0777 to 0.0900, while Assets/Equity decreased from 2.3657 to 2.2208. The stock offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 3.93%, current ratio at 2.11, and quick ratio at 1.82. The stock has gained 23.86% over the last year.

19. Cabot Microelectronics Corp. (NASDAQ:CCMP): Semiconductor Industry. Market cap of $1.17B. On 11/29/10 the company announced a buyback of $125M (representing 10.72% of market cap). Return on Equity increased from 2.70% to 3.04%. When analyzing the sources of return, Net Profit Margin increased from 13.43% to 14.44%. Sales/Assets increased from 0.1844 to 0.1953, while Assets/Equity decreased from 1.0915 to 1.0775. The stock is a short squeeze candidate, with a short float at 10.16% (equivalent to 14.22 days of average volume). The stock has had a couple of great days, gaining 7.32% over the last week.

20. Kennametal Inc. (NYSE:KMT): Machine Tools & Accessories Industry. Market cap of $3.20B. On 10/28/10 the company announced a buyback of 8 M shares (representing 9.74% of market cap based on current prices). Return on Equity increased from 0.43% to 2.99%. When analyzing the sources of return, Net Profit Margin increased from 1.35% to 7.68%. Sales/Assets increased from 0.1909 to 0.2362, while Assets/Equity decreased from 1.6828 to 1.6455. The stock has gained 40.45% over the last year.

21. CBS Corporation (NYSE:CBS): TV Industry. Market cap of $16.59B. On 11/04/10 the company announced a buyback of $1.5 B (representing 9.04% of market cap). Return on Equity increased from 0.65% to 2.88%. When analyzing the sources of return, Net Profit Margin increased from 1.68% to 7.26%. Sales/Assets increased from 0.1298 to 0.1492, while Assets/Equity decreased from 2.9893 to 2.6620. CBS is a risky stock that is significantly more volatile than the overall market (beta = 2.2). The stock has had a couple of great days, gaining 6.2% over the last week.

22. Cytec Industries Inc. (NYSE:CYT): Specialty Chemicals Industry. Market cap of $2.64B. On 1/27/11 the company announced a buyback of $150M (representing 5.69% of market cap). Return on Equity increased from 0.63% to 2.77%. When analyzing the sources of return, Net Profit Margin increased from 1.51% to 6.86%. Sales/Assets increased from 0.1821 to 0.1904, while Assets/Equity decreased from 2.2833 to 2.1229. The stock has gained 15.34% over the last year.

23. Pentair, Inc. (NYSE:PNR): Industrial Equipment & Components Industry. Market cap of $3.67B. On 12/15/10 the company announced a buyback of $25M (representing 0.68% of market cap). Return on Equity increased from 1.46% to 2.22%. When analyzing the sources of return, Net Profit Margin increased from 4.18% to 6.15%. Sales/Assets increased from 0.1795 to 0.1897, while Assets/Equity decreased from 1.9439 to 1.8983. Short float at 5.47% (equivalent to 12.08 days of average volume), implying the stock is a short squeeze candidate. The stock has gained 10.03% over the last year.

24. Republic Services, Inc. (NYSE:RSG): Waste Management Industry. Market cap of $11.47B. On 11/04/10 the company announced a buyback of $400M (representing 3.49% of market cap). Return on Equity increased from 0.47% to 1.88%. When analyzing the sources of return, Net Profit Margin increased from 1.78% to 7.30%. Sales/Assets increased from 0.1023 to 0.1038, while Assets/Equity decreased from 2.5832 to 2.4803. The stock has gained 5.81% over the last year.

25. Life Technologies Corporation (NASDAQ:LIFE): Biotechnology Industry. Market cap of $9.10B. On 1/11/11 the company announced a buyback of $500M (representing 5.49% of market cap). Return on Equity increased from 1.21% to 1.59%. When analyzing the sources of return, Net Profit Margin increased from 5.61% to 7.58%. Sales/Assets increased from 0.0956 to 0.0983, while Assets/Equity decreased from 2.2638 to 2.1394. LIFE has a relatively low correlation to the market (beta = 0.78), which may be appealing to risk-averse investors. The stock has lost 2.92% over the last year.

Source: Top 25 Buyback Companies With Encouraging ROE Trends