It's an open secret that Wal-Mart (NYSE: WMT)
can't seem to find meaningful growth opportunities. The massive retailer's sales grew just 1% in fiscal (January) 2010, 3% in fiscal 2011 and will be hard-pressed to grow much more in fiscal 2011 and 2012. Tepid growth explains why shares have been flat for more than a decade.
Yet if you go straight to the bottom line, you see a much better picture. Profits per share have been steadily rising, jumping another 12% in fiscal 2011, and are expected to rise nearly 10% in the current fiscal year. Massive share buybacks get the credit. The retailer has been absorbing huge chunks of its own stock, spending more than $23 billion in cumulative free cash flow in the past three years. (For a deeper look at Wal Mart's prodigious free cash flow, read this)
Wal Mart is at it again. In the week of June 6, the company announced plans to buy back another $15 billion of its stock. The company's share count has already shrunk from 4.4 billion in fiscal 2003 to a recent 3.7 billion. This new buyback plan may take this figure down to 3.4 billion. Simply delivering flat sales and net income will still boost Wal Mart's earnings per share (EPS) by roughly 8%. Toss in forecasts of moderate 3% to 5% sales growth and the commensurate operating leverage, and EPS may actually grow in the low teens; not bad for a company that has been shunned by Wall Street for a decade.
The decision to make ever larger buybacks makes clear sense. So many companies are flush with cash, but few have current organic growth prospects. Why not radically shrink the share count while shares are cheap? Here are a few other blue chip stocks seeking to use their bulletproof balance sheets to bolster per-share profits.
1. Aetna (NYSE: AET)
This health care insurer has been using cash flow to repurchase shares for a number of years.
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In late May, Aetna announced plans to buy back another $750 million in stock, which partially explains why per share profits are expected to rise roughly 20% in 2011 even as sales are expected to remain flat.