Financially Indefensible

According to Axalta Coating Systems' (AXTA) Statement of Cash Flows on its 10-Q for Third Quarter 2018, the company expended $147.8 million of owners' cash in the first nine months of 2018; and, per its most recent 10-K, spent and additional $58.4 million in 2017 for the combined purpose of repurchasing common shares from the market.  AXTA management has, as of 30 September 2018, spent $206.2 million of owners' cash for stock repurchases. A natural question for a continuing owner of the enterprise would be, " how much have myself and fellow owners gained for the $200 million + we have implicitly authorized going out the door to departing shareholders ?"   How else would the wisdom of the management be judged? AXTA's financial statements filed with the SEC also demonstrate that during the 21-month period of 31 December 2016 through 30 September 2018 the company's diluted common shares outstanding fell from 240.5 million to 239.6 million. Dividing...

On August 3, 2011 , Nasdaq.com published an article authored by Louis Navellier, titled “ 5 100 Billion Stocks Not Worth a Dime of Your Money".    Navellier wrote, “ Given that future profits in the stock market are a function of profit growth, owning a $100 billion stock makes little sense .” Navellier's original article Berkshire Hathaway, Inc. (BRK), the conglomerate controlled by Warren Buffett, was Navellier’s top target for dissuading would-be investors.   Among other mistakes, Navellier, without elaboration or substantiation , stated that BRK should be avoided while it was selling at premium prices.   Navellier patently failed to describe his method for determining the intrinsic business value of Berkshire Hathaway; that knowledge would be necessary to wax eloquent as to whether the company was selling at a premium or at a discount.  The ensuing seven years has demonstrated that Navellier was radically wrong . At the time of Navellier's article...

During the period of 1/01/2015 through 9/30/2018, Exxon Mobil, per its SEC-published Statement of Cash Flows in its financial reports (10K and 10Q), expended approximately $6.193 billion of owners' cash to acquire common shares from the market. As of 1/01/2015, Exxon had 4.201 billion shares outstanding; and as of 9/30/2018, there were 4.233 billion shares outstanding.  The result: continuing shareholders gave up more than six billion dollars in the most recent period, ostensibly in exchange for $6 billion worth of share reduction; however, at the close of September 2018, there were 32 million more shares outstanding than when the cash-blowing operation began. More than $6 billion of owners' cash was expended for the shares bought and therefore may not be argued as having been needed by the company.  Shareholders might reasonably ask why the alternative of an additional $6 billion in cash dividends were not paid?  That is, for continuing shareholders of Exxon-...

Conflating Shareholders: The stock buyback trend has been extremely hot in the last several years among major U.S. public companies.   Multi-billion-dollar buyback programs are announced by management and the market often reacts positively without any analytical scrutiny.   Buybacks are neither positive nor negative in a vacuum; the efficacy of the program is eventually borne out by whether the shares repurchased were attained well below their intrinsic business value.  If so, accolades to the management; and if not, tomatoes. The bandwagon effect becomes far more dubious among large businesses when management conflates two species of stockholders, those Warren Buffett refers to as Continuing Shareholders and those he calls Departing Shareholders.  This distinction has little relevance most of the time; however, whenever a company announces a stock buyback program, the importance becomes paramount.   The distinction is critical in evaluating the efficacy...