In 2022, U.S. companies did $1.22 trillion in stock buybacks. In the first half of 2023, S&P 500 companies have repurchased $385 billion in stock despite paying over $3 billion in tax on the share repurchases due to the 1% tax that went into effect on Jan. 1.
Many companies feel share repurchases are an excellent capital allocation lever to pull. When a company announces a new share repurchase plan, its shares often rise on the news because it indicates management is enthusiastic about the stock’s appreciation potential. However, that is not always the case. In mid-August, Home Depot (NYSE:HD) announced a $15 billion share repurchase plan. Unfortunately, year-over-year declines in both sales and earnings sent HD stock lower in the days since.
Barring any bad earnings news shortly, these three companies have initiated stock buybacks this summer that should send their stocks higher in the coming weeks and months.
NVR (NVR)
Since 2020, NVR (NYSE:NVR) has repurchased $3.6 billion of its stock. They are showing no sign of stopping now. The homebuilder recently announced that its board authorized a $500 million share repurchase.
The company is one of three homebuilding stocks that Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) bought in the second quarter, indicating that the holding company believes interest rates will soon fall, combined with an ongoing need for more housing in America.
Through the first six months of 2023, NVR sold 11,034 homes at an average price of $454,000. As of June 30, it had a backlog of 12,286 homes at an average price of $458,600, which means it’s getting more for houses to be built than those already made in the year’s first half. Even though revenue and earnings were down through the first half of the year, they were still healthy at $4.52 billion and $748.4 million.
NVR stock is up nearly 33% year-to-date (YTD) and 130% over the past five years. The median analyst target price is $6,750, 11% higher than where it’s currently trading.
Ameriprise Financial (AMP)
Ameriprise Financial (NYSE:AMP) announced an additional $3.5 billion share repurchase at the end of July. The financial services company’s share repurchase program expires on Sept. 30, 2025. Including the $500 million still available, it has $4 billion on its stock buybacks authorization.
The company also pays a quarterly dividend of $1.35 a share. The May 2023 payment raised the quarterly dividend by 8.0% from $1.25. The annual rate of $5.40 yields 1.6%.
On the same day it announced its share repurchase addition, it released its Q2 2023 results. Its adjusted operating EPS in the second quarter was $7.44, 30% higher than a year earlier. Its operating earnings were higher due to a strong showing from its Advice & Wealth Management segment, which grew adjusted operating net revenues by 14% over last year with a 49% increase in adjusted operating earnings. It paid out $146 million and $492 million in dividends and share repurchases in the second quarter.
AMP stock is up 8.25% YTD, about half the performance of the S&P 500. However, it’s up 136.8% over the past five years, 2.6x the index.
Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) has generously returned capital to shareholders in 2023. On June 30, the investment bank and wealth management firm announced that its board had authorized a $20 billion share repurchase program with no expiration.
The dividend was raised 9.7% to 85 cents a share. The annual rate of $3.40 yields 4.1%. In the year’s first half, Morgan Stanley paid out $2.79 billion in dividends and $2.50 billion for share repurchases. Thanks to the swoon in its share price over the past six months, it’s down 12.5%, its share repurchases from the first half of the year are losing money. It paid an average of $90.29 a share on its buybacks, 8.5% more than its current share price.
Analysts are generally enthusiastic about MS stock. Of the 27 who cover it, 16 rate it overweight or an outright buy, with a median target of $100.75.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
