The 2012 buyback blitz continues. In October, dozens of companies announced new buyback plans or extended old ones, including IBM (IBM -0.45%), which said on October 30 it would increase its stock refund by 75% to $11.7 billion. The company has spent $3 billion on share repurchases so far this year. The increase represents an additional $5 billion in stock, or about 2% of the company's market value. Joining IBM at the billion-dollar level is TRW Auto (TRW +1.24%), which pledged to spend $1 billion to buy back stock (18% market value) over the next two years.
In July we wrote about the earlier group of companies buying back their own stock. At that time, American Greetings (AM -1.15%), Baxter (BAX +0.96%), CBS (CBS +1.26%), Lockheed (LMT +0.11%), News Corp (NWSA +0.06%), Radio Shack (RSH +3.84%), Travelzoo (TZOO -0.65%) and Visa (V -0.15%) had all pledged billions in repurchase plans.
Buybacks have numerous benefits. They reduce assets on the balance sheet, which translates into a higher return-on-assets and return-on-equity -- all without any change in earnings. They also drive down that ubiquitous measure, the price-to-earnings ratio, which makes it appear that a company is less expensive than it was before the buyback.
As far as benefits for the shareholder go, buybacks are usually considered a positive when the stock is selling at a material discount to its intrinsic value. As a general rule, buybacks tend to boost investor confidence. As Crain's Detroit Business quoted Matthew Stover, an analyst with Guggenheim Securities, on the larger than expected TRW buyback: "Management and the board took a simpler and larger approach, which is ultimately more attention-grabbing and underlies their confidence in the outlook for the company."
One other reason buybacks have been the rage in 2012 is the uncertainty around the Bush-era tax cuts that could end this year. Those taxes cap both the long-term capital gain rate and stock dividend rate at 15%. Buybacks are taxed at the capital gains rate.
Like IBM, American Capital Agency (AGNC -1.77%) took advantage of the closed markets last week, pledging $500 million (12% market value), in a repurchase program. AGNC specified that it would only buy shares when they are trading below book value.
Aspen Insurance Holdings (AHL +0.54%) and WABCO (WBC +1.30%) have each pledged $400 million, representing 18% and 12% market value respectively. Aspen made the announcement in its earnings call in mid-October while WBC made its announcement while the markets were closed for Hurricane Sandy.
Earlier in October, Dana Holdings (DAN +0.69%) said it would spend $250 million (13% market value) on a buyback program, while Zynga (ZNGA) and Rent-A-Center (RCII -0.81%) said they would spend $200 million each, representing 11% and 10% market value respectively. It's the first time Zynga has ever initiated a repurchase program and it was clearly done to boost investor confidence as the company shares have fallen from a 52-week high of $15.91 to $2.26 in Tuesday's trading. RCII announced its buyback plan at the same time it said its third quarter earnings would be less than the consensus estimate.
The largest market value buyback, at 79%, belongs to Willis Lease Financial (WLFC -0.21%), which announced a five-year $100 million buyback plan. The announcement was made in early October and as of mid-month it had repurchased $6.1 million worth of shares.