Sirius XM Radio Inc (NASDAQ:SIRI) has traded higher by 85.5% during the last 12 months. Since December 2012, Sirius XM’s stock has rallied 31% — which was when the company announced a $2 billion buyback program.
Looking at Sirius XM Radio Inc (NASDAQ:SIRI) as a company, it trades with a market cap of $22 billion. Approximately half of the company is owned by Liberty Media; or $11 billion. Then, almost 30% of the company is owned by institutions; or $6.5 billion. Therefore, just $4.5 billion of the company is available to retail investors in the stock’s float. This means that Sirius XM’s $2 billion buyback program buys-back almost half of its available float – which is what makes Sirius XM Radio Inc (NASDAQ:SIRI)’s buyback program unique.
During the company’s most recent quarter, it did not mention specifically how many shares it has already purchased. However, the company did mention that it is now able to “pursue our $2 billion stock buyback program” due to the flexibility provided by its $1.25 billion revolving credit facility.
While we do not know how much of the $2 billion for buybacks has been spent, it is reasonable to suggest that the majority of shares have not been bought back; judging by its comments above.
Therefore, to be conservative, let’s say that the company has already bought-back $500 million worth of shares. As a result, the company would be expected to acquire more than 35% of its available float over the next year.
Of course, this depends on how much the company has already purchased. In reality, it could be a lot more. In that case, the buybacks should not only serve as a safety net for investors – but should also produce greater gains as Sirius XM Radio Inc (NASDAQ:SIRI) buys back the majority of its available stock.
Record Buyback Program To Create Significant Upside
Back on April 23, Apple Inc. (NASDAQ:AAPL) made history when it announced intentions to return $100 billion back to shareholders by the end of 2015. Approximately $60 billion will be used for share buybacks, or $20 billion per year for the next three years total. Upon completion, this will be the largest buyback ever; making it very unique.
The impact of Apple Inc. (NASDAQ:AAPL)’s buyback is complicated due to the pure size of the company – but also because of its ownership. With Sirius XM Radio Inc (NASDAQ:SIRI) there was a large and stable owner in Liberty Media – but Apple does not have a single entity that owns 50% of its shares – although it does have a great presence of institutional ownership.
Up until last year, Apple Inc. (NASDAQ:AAPL) had been the most widely held stock among hedge funds for three consecutive years. It has since dropped to number three, with 64% of its 946.8 million shares outstanding being institutionally owned. Therefore, roughly 340.6 million shares are currently available to the market.
Unfortunately, we have to assume that Apple’s 64% institutional ownership will remain stable. If so, this would be beneath Microsoft Corporation (NASDAQ:MSFT)’s 67% and Google Inc (NASDAQ:GOOG)’s 85.6% institutional ownership. Therefore, because of Apple’s large eight month loss of 30% and its recent increases to its dividend/buyback program, it’s sensible to assume that 64% ownership will remain stable – judging by ownership at similar companies.
Currently, Apple is priced at $445 and has traded higher by 11.6% since announcing its revamped buyback program. Apple has already begun to buyback shares during this period, although we don’t know an actual amount.
At $450, Apple would reduce its share count by 133.3 million. If its average buy price is $500 then it reduces its share count by 120 million. Either way, Apple Inc. (NASDAQ:AAPL) is greatly reducing its share count.
Just like Sirius XM Radio Inc (NASDAQ:SIRI), when you take into consideration the number of shares that are already owned by institutions — Apple’s buyback will eliminate much of its remaining float – more than 30% over three years.
Apple Inc. (NASDAQ:AAPL) is trading at just 7 times earnings minus cash, which is much cheaper than the technology index of 15 times earnings. Therefore, it makes sense that Apple would be aggressive in buying back shares right now. The company has plans to spend $60 billion by the end of 2015 – but it doesn’t necessarily mean that the $60 billion will be split equally. As a result, with the stock being so cheap, I think Apple will buyback its own stock with authority — and is a great investment opportunity.
Final Thoughts
Over the last two years we have seen companies such as Seagate Technologies create a great deal of value by reinvesting capital with buybacks. With interest rates being so low and the benefit of reducing share counts being so high, we are seeing more and more companies elect to buy back stock.
Apple and Sirius XM Radio Inc (NASDAQ:SIRI) look to present a rare opportunity in this market. Sirius XM’s $2 billion buyback program is not excessive – but with its limited float the impact of the buyback becomes particularly attractive.
Apple Inc. (NASDAQ:AAPL) is breaking all the records with its capital return plan, which I believe will greatly change the sentiment surrounding this cheap company.
Overall, both companies have created support for their stock, and should see significant gains due to aggressive buyback plans in the quarters that lie ahead.
The article 2 Buyback Programs to Create Long-Term Gains originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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