The findings of Institutional Investors 2012 Corporate
Buyback Scorecard may be most dramatically illustrated by a
detailed comparison of two companies approaches. Seventh
from the top of the buyback rankings table and first in
consumer services, Wyndham Corp. follows a disciplined approach
to putting cash flow into shareholders pockets through
share repurchases. Since June 2010, $1.4 billion in buybacks
has exceeded dividend payouts by more than 8 to 1.
But Wyndhams payback appears to validate the
repurchases. The companys 63.1 percent buyback ROI was
three times the consumer services median. Accounting for that
was a buyback strategy that produced a return that was double
the median in its sector and that dwarfed the 9.6 percent
median for all companies, and effectiveness that produced a
robust 12.6 percent return versus a negative 0.4 percent in its
sector and a more dramatically worse negative 2.2 percent
Fortuna Advisors Buyback ROI
Wyndham Worldwide Corporation (NYSE:WYN)
Annualized IRR based on $ of buybacks, avoided
and value of shares at ending share price
Annualized TSR of quarterly average starting price,
dividends and ending price.
Buybacks lever up TSR when it is high.
Shows degree to which Buyback ROI exceeds TSR.
Buying shares back when the price is below the long term
trend is beneficial.
|Note: Estimated number of shares repurchased
each quarter based on average adjusted share price over
the course of the quarter.
In contrast, FLIR Systems, which designs, manufactures and
markets thermal imaging infrared cameras, produced a buyback
ROI over the past two years that at No. 240, placed it 14th
from the bottom of the S&P 500 and 16th out of 18 in the
Technology Hardware and Equipment Industry, ahead of only
Hewlett-Packard and Juniper Networks, with a negative 27
percent ROI on $253 million in buybacks. Not surprisingly, its
buyback strategy produced a negative 12.8 percent return, while
its buyback effectiveness lost 16.6 percent.
In the companys defense, FLIR vice president of
finance Tony Trunzo says the Fortuna study focuses too much on
the short term. Over nine years, Trunzo estimates that FLIR
buybacks have created significant value for shareholders. He
notes that the average price paid to repurchase FLIR shares
since 2003 is $16.28, versus an average stock price of $21.50,
and that includes a 40 percent slide from the peak stock price.
As a result, Trunzo says the program has generated a
slightly positive internal rate of return. And he
estimates that the program saved shareholders around $300
million, based on the difference in prices paid for the shares
versus the average price for the period.