With corporate profits at record highs, many companies are returning much of that cash to investors through share repurchase programs. You can profit from this trend by entering long-term positions in buyback stocks.
Share repurchases may have their social and political critics, but from the investor’s standpoint, stock buybacks can be an effective tool for a company to maximize shareholder value. By reducing the amount of shares outstanding, repurchases can provide a lift for earnings per share.
As stocks typically rise over the long term in tandem with increases in per-share earnings, share repurchase programs can ultimately boost long-term total returns.
So, what are some examples of top buyback stocks right now? Consider these seven. Each of them has initiated or expanded a large-scale share repurchase program in recent months.
Buyback Stocks: Adobe (ADBE)
Last month, software giant Adobe (NASDAQ:ADBE) announced plans to repurchase up to $25 billion worth of shares between now and 2028. Based on Adobe’s current market cap, this represents around 11.8% of ADBE’s outstanding share count.
This buyback news has thus far had zero impact on ADBE stock. In fact, waning excitement about the generative AI growth trend has overshadowed it. Nevertheless, in time, this buyback could play a role in getting ADBE moving in the right direction once again.
Why? Steadily decreasing the share count won’t be the main driver, but alongside organic growth, it may contribute to Adobe delivering earnings growth in line with forecasts.
The sell-side estimates that Adobe’s earnings will grow by around 13% during the fiscal year ending November 2025, with earnings experiencing another 13.4% increase during the fiscal year ending November 2026.
Darden Restaurants (DRI)
On March 21, Darden Restaurants (NYSE:DRI) become one of the top buyback stocks, when the Olive Garden and Longhorn Steakhouse parent unveiled outside its latest earnings release plans to buy back up to $1 billion worth of DRI shares.
Admittedly, while $1 billion is a significant sum, for those aware of Darden’s market cap, it may sound like a drop in the bucket. If the company were to repurchase DRI stock worth $1 billion today, this would only decrease DRI’s outstanding share count by around 5.5%.
However, it’s not as if Darden’s share repurchase program is the only catalyst at play for the stock. InvestorPlace’s Joel Baglole recently argued that the company’s recent acquisition of Ruth Chris Steak House, plus the possibility of better-than-feared results following mixed results last quarter, are two additional factors that could give shares a lift down the road.
Buyback Stocks: eBay (EBAY)
Back in February, alongside its latest fiscal results, eBay (NASDAQ:EBAY) announced that it had increased its share repurchase program by $2 billion.
This means that the online auction marketplace operator is now authorized to buy back as much as $3.4 billion worth of its outstanding shares.
Considering EBAY’s current market cap of $26.6 billion, this means the company could retire as much as 12.8% of its outstanding shares. Decreasing the share count would help to counter the company’s weak earnings growth in recent years, which has had a negative impact on the performance of EBAY stock.
That’s not all. Ebay is also aggressively reducing operating expenses, including mass layoffs, which stand to increase profitability. Even if growth remains slow, enhancements to the bottom line may lead to a re-rating for this undervalued tech stock, which currently trades for only 11 times forward earnings.
FedEx (FDX)
FedEx’s (NYSE:FDX) post-pandemic slump may end soon. At least based on the shipping company’s most recently released fiscal results.
Although growth has yet to re-accelerate to Covid-era levels, much like other companies facing a growth slowdown, FedEx is making up for it through cost reduction efforts.
These efforts were material in last quarter’s earnings beat. However, it wasn’t just better-than-expected results that resulted in FDX stock surging following the March 21 earnings release. Rather, it was news of Fedex’s latest share repurchase plans.
Adding to the $1 billion in share repurchases last quarter, the company announced it would buy back another $5 billion in stock. Against FDX’s current market cap of $65.9 billion, this means that Fedex is authorized to buy back as much as 7.6% of its outstanding shares. With this in mind, consider FDX one of the top buyback stocks to buy.
Buyback Stocks: ODP Corporation (ODP)
ODP Corporation (NASDAQ:ODP) is the parent company of office supply retailers OfficeMax and Office Depot. Even as the company has reported declining sales and lackluster earnings growth in recent years, shares have performed well over the past few months.
While not certain, a reason for this may be recent activist investor involvement. Back in December, hedge fund Arex Capital Management started pushing for ODP’s board to make sweeping changes to unlock value out of ODP stock, which trades at a highly discounted 8.9 times forward earnings.
In February, the company responded with its own set of proposed big moves. These included cost-cutting plans, as well as plans to buy back $1 billion worth of shares. For reference, ODP has a market cap of just $1.85 billion. Implementation of this share repurchase plan could go a long way in sending ODP to much higher prices.
PVH (PVH)
Earlier this month, PVH’s (NYSE:PVH) latest quarterly earnings release elicited a negative reaction from the market.
On the heels of lackluster guidance, shares in the apparel company tumbled by over 22%. However, there was a silver lining contained within the earnings release.
That would be the Tommy Hilfiger and Calvin Klein parent’s plans to buy back $2 billion worth of PVH stock between now and July 2028.
As $2 billion represents nearly a third of PVH’s current valuation, this development makes it one of the top buyback stocks. Sure, the impact of this buyback will play out slowly. However, a rebound could happen far sooner
How so? As a Seeking Alpha commentator Seeking Profits argued in a post-earnings write-up on PVH, the aforementioned weak guidance may have been overly conservative. This suggests the strong possibility that the company delivers positive surprises with its next few earnings releases.
Buyback Stocks: Ulta Beauty (ULTA)
Ulta Beauty (NASDAQ:ULTA) is another example of buyback news getting overshadowed by disappointing guidance.
In its Q4 2023 earnings release, Ulta reported results that exceeded expectations. The beauty retailer also said that it was launching a new $2 billion share repurchase program.
However, instead of focusing on these positives, investors focused mostly on Ulta’s guidance calling for weak margins. To make matters worse, ULTA stock has continued to tank over concerns about a beauty sales slowdown.
However, in response to this sell off Loop Capital’s Anthony Chukumba has upgraded ULTA from “hold” to “buy,” stating this selloff was “overdone.”
While not citing the buyback plans in his upgrade, Chukumba did note that Ulta may soon start to return cash to shareholders in another way: by starting to pay a quarterly dividend. The analyst believes making such a move could result in a positive response from the market.
On the date of publication, Thomas Niel did not hold (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.comPublishing Guidelines.