In his 2016 annual letter, Buffett praised share buybacks, at the right price.
“My suggestion: Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, ‘What is smart at one price is stupid at another,’” he said.
For him, the smart price is below intrinsic value. For itself, Berkshire has vowed not to make repurchases at greater than 120% of book value, even less than Buffett’s calculation of intrinsic value for the vast conglomerate.
Even if it is underpriced, companies shouldn’t buy back their stock under several other conditions, according to Buffett:
- The company needs all the money it can get to fund its operations or finds additional debt unwise as it looks to a promising future.
- An acquisition would serve its business and shareholders better than retiring stock.
Buffett also praised many of his companies, such as Bank of America, for repurchasing stock, “some quite aggressively.”
“We very much like this behavior because we believe the repurchased shares have in most cases been underpriced. (Undervaluation, after all, is why we own these positions.) When a company grows and outstanding shares shrink, good things happen for shareholders,” he said in the letter.
These are his portfolio companies buying back stock most aggressively over the past year.
Liberty Global PLC
One-year share buyback rate: 10.1%
Liberty Global is the tracking stock for Liberty Global PLC’s European assets, which encompass cable networks, small satellite operations and wifi networks across the continent.
In the first half of the year, Liberty Global repurchased $2.2 billion of its shares. In a press release, the company’s CEO Mike Fries said he took price into account when he made the repurchases. “With respect to our share buyback programs, we took advantage of recent trading levels” to buy back the record number of shares.
“Going forward, we will continue to manage our business through the lens of our long-standing levered-equity strategy, and will continue to be opportunistic when our stock prices look especially attractive,” Fries said.
The “recent trading levels” Fries took advantage of involved a drop to their lowest-ever price in June of $28.17, off of their 52-week peak of $37.69 reached in February. Liberty’s stock traded around $32.94 on Friday afternoon.
American Airlines Group Inc.
One-year share buyback rate: 9.2%
The airline spent $450 million repurchasing 10 million shares in the second quarter, and $512 million buying back 11.7 shares in the first of 2017.
Since 2014, American Airlines expended $10.2 billion in repurchases and dividends, shrinking its share count by 34%. The company has around $1.5 billion of its $2.0 repurchase authorization remaining.
American Airlines has said it buys back its shares “subject to market and economic conditions” in addition to other factors.
The stock closed at $46 per share on Friday after advancing 19.5% for the past year.
One-year share buyback rate: 7.6%
DaVita, a leading kidney dialysis company, is widely considered a buy of one of the managers Buffett hired, Ted Weschler.
In the second quarter, DaVita bought back 3,574,573 shares for $232 million, or $64.81 on average, as the price declined in the first quarter. The quarter’s activity left it with $445 million in its repurchase authorization. It conducted no buybacks in the first quarter of the year as the price ended the quarter up.
The share price of DaVita fell 6.3% over the past year in choppy trading, declining to $59.63 at close Friday.