Fortuna Advisors' 2021 Buyback ROI Report Ranks the U.S.'s Largest Share Repurchasers on their Buyback Performance
PONTE VEDRA BEACH, Fla., July 15, 2021 /PRNewswire/ -- Study unpacks how companies created—or destroyed—value through their share repurchase programs. Key findings include:
- The COVID pandemic led to the largest quarterly drop in share repurchase volume in five years as US companies preserved cash
- The Technology and Industrials sectors delivered the highest median Buyback ROIs, generating 21.8% and 16.4% returns, respectively, for shareholders
- Nearly 53% of large repurchasers bought back more shares above their long-term price trends, leading to lower ROI for their shareholders
In 2020, the COVID-19 pandemic had an extraordinary impact on economies and businesses. Companies responded by conserving cash, which meant declines in all major forms of capital allocation. The total dollar amount committed to share repurchases was the most impacted, dropping 55% quarter-over-quarter in Q2 2020, and 29% for the full year.
The market and economic volatility during 2020 led to suboptimal repurchase decisions for many issuers. To deliver a return on investment for the cash allocated to buybacks, companies need to buy back shares when market prices are "low" compared to their intrinsic value. As market prices converge to intrinsic value over time, the increased value accrues to the company and its remaining shareholders. But doing this well requires clarity on the market price versus true intrinsic value.
Our report details the 2020 performance of sectors and companies in delivering "Buyback ROI," which measures the overall value accrued to shareholders from capital allocated to buybacks; and "Buyback Effectiveness," which measures the incremental value created when companies execute buybacks at prices below the historical trend. The goal of this study is to help management teams understand how buyback programs can be optimized to deliver higher total shareholder returns.
Buybacks play a positive role in transitioning capital to the next generation of Amazons and Apples. But companies should first look for opportunities to invest in their own businesses. With this in mind, our report also examines how intangible value creation opportunities, which increasingly support long-term growth, can be easily overlooked for short-term share reductions and EPS gains. A thoughtful framework helps companies evaluate these tradeoffs.
Fortuna Advisors (fortuna-advisors.com) collaborates with leaders to transform decision-making throughout their business to achieve exceptional results. Our management playbook delivers measurable outcomes through better insights, better decisions, and better behaviors.
SOURCE Fortuna Advisors LLC
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