In this article, we discuss 5 stocks that are gaining after announcing share buybacks. If you want to see more stocks in this selection, click These 10 Stocks are Gaining After Announcing Share Buybacks.
5. The ODP Corporation (NASDAQ:ODP)
Number of Hedge Fund Holders: 24
The ODP Corporation (NASDAQ:ODP) is a Florida-based provider of digital workplace technology solutions for small, medium, and enterprise businesses. The ODP Corporation (NASDAQ:ODP) stock climbed 4.73% on July 18 when the company announced Q2 preliminary sales of $2 billion compared to a consensus of $2.04 billion. The company expects FY22 sales to fall between $8.45 billion to $8.60 billion, versus a Street consensus of $8.41 billion. The ODP Corporation (NASDAQ:ODP) also approved a $600 million share repurchase authorization, including a cash tender offer for shares worth up to $300 million.
Among the hedge funds tracked by Insider Monkey, 24 funds were bullish on The ODP Corporation (NASDAQ:ODP) at the end of March 2022, compared to 28 funds in the prior quarter. Parag Vora’s HG Vora Capital Management is the biggest stakeholder of the company, with 5 million shares worth $229.15 million.
Here is what Greenlight Capital has to say about The ODP Corporation (NASDAQ:ODP) in its Q4 2021 investor letter:
“ODP Corporation (ODP) is a holding company that operates retail brands including Office Depot and OfficeMax, and provides business services and products through a B2B distribution platform. ODP is undergoing a corporate transformation that we expect will conclude over the next year, resulting in the separation of its retail and business solutions divisions. ODP has a strong cash position and an undemanding valuation and is in the process of buying back 20% of its shares by the middle of 2022.
As the company is being broken up, we believe that a sum-of-the-parts analysis is appropriate. In June, Staples offered $1 billion in cash for ODP’s retail division, so we will use that. The remaining B2B business has better prospects and we believe that it deserves a higher multiple. We see $200 million of 2022 pro-forma EBITDA for this segment and by assigning a 7x multiple we arrive at $1.4 billion for this piece. Adding in $400 million of net cash and our estimate of $219 million of current value for its recently announced sale of CompuCom Systems (a technology support and services unit), brings us to just over $3 billion of total value. Using the last reported share count, this equates to about $55 per share.
Not included in our valuation is Varis. ODP has assembled a world-class team to create this nascent digital commerce SaaS and procurement business. We believe Varis is promising and offers ODP shareholders a potentially valuable option. We first acquired ODP shares in February and established a medium-sized position throughout the year at an average price per share of $43.69. ODP shares ended the year at $39.28.”
4. F5, Inc. (NASDAQ:FFIV)
Number of Hedge Fund Holders: 29
F5, Inc. (NASDAQ:FFIV) was incorporated in 1996 and is headquartered in Seattle, Washington. The company provides on-demand application security and delivery solutions for the security, optimized performance, and availability of network applications and storage systems. The stock jumped 14% on July 25 when the company announced a $1 billion share repurchase program, which is incremental to the $272 million remaining in the prior buyback authorization.
On July 26, Cowen analyst Paul Silverstein maintained an Outperform rating on F5, Inc. (NASDAQ:FFIV) and lowered the price target on the stock to $208 from $212. The analyst slashed his revenue estimates only to allow for potential macro effect but corresponding operating expenditure reductions drive higher FY22-24 EPS estimates.
According to Insider Monkey’s data, 29 hedge funds were long F5, Inc. (NASDAQ:FFIV) at the end of Q1 2022, up from 26 funds in the last quarter. Jim Simons’ Renaissance Technologies is the leading shareholder of the company, with 1.25 million shares worth $262.5 million.
3. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 31
AutoNation, Inc. (NYSE:AN) is a Florida-based automotive retailer that operates through three segments – Domestic, Import, and Premium Luxury. On July 21, the company announced a share repurchase program to buy back up to $1 billion of its common stock. AutoNation, Inc. (NYSE:AN) repurchased 3.7 million shares during Q2 for an aggregate price of $404 million. The company’s Q2 GAAP EPS of $6.48 exceeded Street consensus by $0.19. The stock gained 0.41% on July 27.
On July 25, Seaport Global analyst Glenn Chin upgraded AutoNation, Inc. (NYSE:AN) to Buy from Neutral with an $180 price target. The analyst sees a “prolonged outsized earnings cycle” for AutoNation, Inc. (NYSE:AN), observing that sector sales are already at recessionary levels and there is “deep pent-up demand” with thin inventories. The stock’s valuation is “extremely depressed” and the analyst is confident about the firm’s new CEO Manley. He believes AutoNation, Inc. (NYSE:AN)’s shares are “too compelling NOT to upgrade” given his long-term bullish view on franchise auto retailers.
Among the hedge funds tracked by Insider Monkey, 31 funds were long AutoNation, Inc. (NYSE:AN) at the end of Q1 2022, compared to 37 funds in the prior quarter. Cliff Asness’ AQR Capital Management is the leading shareholder of the company, with 942,405 shares worth about $94 million.
Here is what Black Bear Value Partners has to say about AutoNation, Inc. (NYSE:AN) in its Q4 2021 investor letter:
“AutoNation is an example of what can happen when you marry excellent business operations with best-in-class capital allocation. Mike Jackson and his team have been able to reinvest in the business, grow ancillary businesses, and acquire new dealerships all while buying back TONS of stock when the opportunity presents itself (27% of the company over the trailing 12 months ending 9/30). Other companies should take notice and use AutoNation as a case study in compounding value for shareholders while also being great corporate citizens. Auto dealers have been over-earning on car sales due to a lack of inventory from the semiconductor shortage. It seems obvious that when the semiconductor shortage is resolved, more cars will become available and unit profitability will be reduced. In short, their earnings will likely decline in the 12 months following the inventory shortage and then resume their rise. Our longer-term horizon allows us the ability to own the business and not focus on a short-term issue. The semiconductor issue is likely to persist thru 2022 though this is a guess. Ultimately our long-term thesis on the business remains intact. If the business can extend its moat, maintain its pricing power, and remain important to both its customers and suppliers we will do fine. Over the last 12 months ending September 30, 2021, the company has bought back 27% of the shares at a cost of ~$81.50. Given the stock has been trading at $100+ it has been a good investment on a mark-to-market basis. More importantly, we own 27% more of the company without having to lay out a single dollar of cash. It has a dramatic impact on my estimates of free cash flow on a per-share basis. Looking forward the Company should be able to generate $10-$14 per year in free cash flow which means we likely own it somewhere between an 8-12% yield. Additionally, if AutoNation achieves modest levels of success with AutoNation USA (new used-car super centers) it could add another $6-$12 of per-share value to the business. Note that at current prices, very little in the way of AutoNation USA’s success is priced in.”
2. Cintas Corporation (NASDAQ:CTAS)
Number of Hedge Fund Holders: 32
Cintas Corporation (NASDAQ:CTAS) is headquartered in Cincinnati, Ohio, and the company provides corporate identity uniforms and related business services in the United States, Canada, and Latin America. Cintas Corporation (NASDAQ:CTAS) declared a $1.15 per share quarterly dividend, a 21.1% increase from its prior dividend of $0.95. The dividend is payable on September 15, to shareholders of record on August 15.
Cintas Corporation (NASDAQ:CTAS) also announced that its board authorized an additional share buyback program for up to $1 billion of its common stock at market rate. Paired with an existing share repurchase program, Cintas Corporation (NASDAQ:CTAS) is eligible to buy up to $1.5 billion of its common shares at market prices. The stock gained 1.40% on July 27.
On July 15, Baird analyst Andrew Wittmann reiterated an Outperform rating on Cintas Corporation (NASDAQ:CTAS) and lowered the firm’s price target on the stock to $440 from $458. The analyst said he has relatively less conviction due to the stock’s outperformance but he said little has changed after its strong top-line performance and positive commentary. He believes the company’s size and dominant market share makes it best positioned to survive an economic downturn.
Among the hedge funds tracked by Insider Monkey, 32 funds were bullish on Cintas Corporation (NASDAQ:CTAS) at the end of Q1 2022, compared to 42 funds in the prior quarter. Ian Simm’s Impax Asset Management is the leading stakeholder of the company, with more than 1 million shares worth about $468 million.
Here is what Cooper Investors Global Equities Fund has to say about Cintas Corporation (NASDAQ:CTAS) in its Q1 2022 investor letter:
“During the quarter the Fund established a position in Cintas Corporation, a market leader in uniform rental services across North America (Mcap $44bn). This service provides workwear for large corporate and government clients, for example managing supply and laundry of uniforms for the nationwide employee base of customers such as Home Depot.
Uniform rental is a tough local business (Cintas has a million customers) but management have built a high quality business operating with stable and growing recurring revenues and have consistently delivered for shareholders. They have the scale and a superior service offering which drives a unique and attractive return profile, including mid-to-high single digit sales growth, 40% returns on tangible funds employed, and earnings per share that have risen for an impressive 50 of the last 52 years.
The opportunity to invest arose following a 20% sell-down as Cintas was caught up in the sell-down in stable compounding businesses during the quarter, despite no change in the outlook or fundamentals for the business.
We view Cintas as a well-positioned Stalwart that can successfully navigate the existing environment. They have the ability to leverage what is a dominant position to grow market share and raise pricing to align with inflation. Cintas could enter a strong period of growth as job openings are filled, manufacturing moves back onshore and the continued growth from service-based industries outsourcing their uniforms. Led by Chairman and descendent of the founder Scott Farmer (also the largest shareholder at 15% of the company) we expect Cintas to continue their track record as excellent operators over the short, medium and long term.”
1. M&T Bank Corporation (NYSE:MTB)
Number of Hedge Fund Holders: 40
M&T Bank Corporation (NYSE:MTB) is a New York-based bank holding company that offers commercial and retail banking services. On July 19, M&T Bank Corporation (NYSE:MTB)’s board authorized the repurchase of up to $3 billion of common stock on the open market or in private transactions. However, the company missed consensus estimates in Q2 2022. The stock gained 0.66% on July 27.
On July 21, Morgan Stanley analyst Betsy Graseck raised the price target on M&T Bank Corporation (NYSE:MTB) to $222 from $203 and kept an Overweight rating on the shares after the company posted Q2 results and lifted its guidance for net interest income growth in 2022. She also raised her 2023 EPS estimate by 9%, the analyst noted.
According to Insider Monkey’s data, 40 hedge funds were bullish on M&T Bank Corporation (NYSE:MTB) at the end of Q1 2022, up from 37 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the largest shareholder of the company, with 1.6 million shares worth $273 million.
You can also take a look at This Analyst Is Bearish on These 15 Retail Stocks Amid “Soft Landing” Expectations and 10 Dividend Stocks of All Time.
