The Buyback Bonanza

Heartland Advisors Value Investing Net Repurchases Chart
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Egged on by record levels of repurchases, as shown above, politicians have been quick to condemn share buybacks as the driving force behind everything from income inequality to slow economic growth. 
 
It’s a useful story for elected officials casting themselves as the defender of the little guy. But is it accurate?
 
Not always. 
 
Our complaint has been with management teams using debt to finance the purchase of shares at peak valuations. 
 
But what about a business trading well below intrinsic value and generating robust free cash flow? Rather than taking the risk of buying another business why not invest in your own? Take Dick’s Sporting Goods, Inc. (DKS) for example. 
 
The national sporting goods chain has invested in beefing up its on-line sales capabilities, increased its dividend by 17%, and repurchased 9.6 million shares—nearly 10% of its float—on the open market. Based on our active research and estimates, the stock offers an earnings yield of nearly 8%, a compelling opportunity in a challenged retail industry. 
 
What makes these efforts, including the share repurchase, noteworthy, is management’s ability to do all three while maintaining a robust balance sheet with a net cash position.
 
We think the story of Dick’s highlights the value of digging beneath the headlines and rhetoric to get the full story. It is an approach we continue to follow and one that we believe benefits our shareholders over the long haul.
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Author

Heartland Advisors Value Investing Portfolio Manager Bill Nasgovitz

Bill Nasgovitz

Nasgovitz is Chairman and Portfolio Manager of the Value Fund and its corresponding separately managed account strategy. He also is President and Director of Heartland Funds. He has 50 years of industry experience, 36 at Heartland.

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As of 3/31/2019, Heartland Advisors on behalf of its clients held approximately 0.45% of the total shares outstanding of Dick’s Sporting Goods, Inc. 

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