A share buyback, also known as a stock repurchase, occurs when a company buys back its own shares from the marketplace. This practice reduces the number of outstanding shares, which can increase the value of remaining shares and boost earnings per share (EPS). Over recent decades, share buybacks have become a preferred method for returning cash to shareholders, often signaling that management believes the stock is undervalued.
For Oil/Energy companies, strong oil prices post-COVID have significantly increased their cash generation. With higher crude realizations, these firms have enjoyed substantial profits, leading to a surge in free cash flow. Instead of focusing on production growth, energy firms are opting to return excess cash to shareholders through buybacks and dividends, aiming to retain investor confidence.
With stock repurchases gaining traction in the energy space, let’s take a look at some recent capital deployment activities.
Marathon Petroleum MPC: One of the largest downstream operators in the United States, Marathon’s premier assets present it with unmatched scale and leadership position. Further, the company’s strategic investment in its midstream partnership allows it to diversify its earnings stream, reduce exposure to oil price fluctuations and allocate a significant portion of its free cash flow to investor returns.
Talking about shareholder commitment, MPC recently increased its quarterly dividend by 10% to 82.50 cents per share. This dividend is well-supported by cash distributions from its midstream segment. However, the company is better known for its share repurchase program. Since May 2021, Marathon Petroleum has executed $35 billion in buybacks, reducing its share count by nearly 50%. This significant reduction, coupled with the newly authorized $5 billion buyback plan, not only underscores the company’s confidence in its prospects but also makes it a compelling buy for investors seeking strong capital returns.
Marathon Petroleum’s expected EPS growth rate for three to five years is currently 6%, which compares favorably with the industry’s growth rate of 4.9%. The Zacks Rank #1 (Strong Buy) company has exceeded the earnings mark in each of the past four quarters, delivering an average earnings surprise of 25% over that timeframe. As a matter of fact, MPC has established a long history of beating earnings estimates, with the last miss seen way back in the second quarter of 2019. MPC shares have gone up 66.8% in a year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BP plc BP: BP is one of the largest publicly traded oil and gas companies in the world, with operations spanning almost every corner of the globe. Globally referred to as a supermajor, London-based BP is fully integrated, meaning it participates in every aspect related to energy – from oil production, to refining and marketing.
BP is aggressively enhancing shareholder value through a substantial share buyback program. The company repurchased $1.75 billion worth of shares in the first quarter, aiming for a total of $3.5 billion in buybacks in the first half of 2024. Highlighting its robust cash flow, BP aims for a total of $14 billion in share repurchases by the end of 2025. Coupled with an 18% dividend increase over the past year, the buyback program underscores BP’s strategy to maximize shareholder value amid favorable industry conditions.
BP’s robust financial results in the first quarter of 2024 provide a strong foundation for investment consideration. The Zacks Rank #3 (Hold) company reported an underlying replacement cost profit of $2.7 billion, even amid challenging market conditions characterized by lower oil and gas realizations, and the impacts of refinery outages. BP shares have gained 8.3% in a year.
TotalEnergies TTE: France-based TotalEnergies SE is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. The #3 Ranked company has operations in more than 130 countries across five continents.
TotalEnergies has announced a $2 billion share buyback for the upcoming quarter, reflecting its strong commitment to shareholder returns despite a 22% annual drop in adjusted net income. This buyback program, coupled with a nearly 7% increase in its first interim dividend to €0.79 per share, highlights the company’s confidence and strategic focus on enhancing shareholder value amid robust oil prices and solid refining margins.
Last month, TotalEnergies reported first-quarter 2024 operating earnings of $2.14 (€1.97) per share, surpassing the Zacks Consensus Estimate of $1.96 by 9.2%. Cash and cash equivalents as of Mar 31, 2024, were $25.7 billion compared with $27.3 billion as of Dec 31, 2023. Gearing, including leases, was 15.5% at the end of first-quarter 2024 compared with 16.5% at first-quarter 2023-end. TTE shares have gained 24.3% in a year.
Shell plc SHEL: Finally, we have Shell — one of the primary oil supermajors, or a group of U.S. and Europe-based big energy multinationals with worldwide operations. The company’s long-term strategy revolves around LNG. This London-based firm, Zacks Rank of 3, bought BG Group for $50 billion in 2016 to become the world’s largest producer and shipper of LNG.
Shell continues to enhance shareholder value through its robust dividend and share buyback programs. Buoyed by $7.7 billion in first-quarter adjusted earnings, the company announced a $3.5 billion share buyback for the April-June period. This comes on the back of $2.8 billion in Q1 repurchases. Additionally, the company maintained its dividend at fourth-quarter 2023 levels, representing around 20% year-over-year increase.
Over the past 30 days, the Zacks Consensus Estimate for 2024 earnings has moved up 2.6%. Shell has a trailing four-quarter earnings surprise of roughly 9.2%, on average. Shell shares have increased 25.6%
Final Words
In summary, energy firms are leveraging their strong cash positions, bolstered by high oil prices, to reward shareholders primarily through buybacks, prioritizing financial returns over expanding production.
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BP p.l.c. (BP) : Free Stock Analysis Report
Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report
TotalEnergies SE Sponsored ADR (TTE) : Free Stock Analysis Report
Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
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