Increasing Stock Buybacks a Signal to Cash Out?

What the Increase in Share Buybacks Means for InvestorsStocks are churning without any notable trend, influenced by geopolitical events, the lack of corporate reporting, and a recent change in investor sentiment regarding valuations. The fact is that a lot of stocks are ahead of themselves, and this is why we may very well get a lot of profit-taking over the next couple of months.

Aside from monetary policy, the most valuable information in the marketplace is what corporations report about their business. While the calendar first quarter will soon be over, a number of companies are now reporting their numbers.

Sonic Corp. (SONC) operates the largest chain of drive-in restaurants and the company’s results for its fiscal second quarter (ended February 28, 2014) weren’t that bad.

Same-store sales for the company grew 1.4%, but total revenues dropped slightly to $109.7 million, down from $111.1 million in the same quarter of last year.

Earnings were $4.1 million, or $0.07 per diluted share, compared to $3.6 million, or $0.06 per diluted share.

In a trend that’s so prevalent these days, the company repurchased $51.0 million of its own shares during the most recent fiscal quarter at an average price of $19.14 per share. This represents approximately five percent of the company’s total shares outstanding. Since the beginning of fiscal 2012, the company has bought back $125 million of its own stock, or 17% of total shares outstanding.

Management anticipates earnings will grow 14% to 15% this fiscal year (compared to adjusted non-GAAP earnings). They also expect to buy back another $80.0 million of the company’s shares this fiscal year. Sonic’s five-year stock chart is featured below:

Sonic Corp ChartChart courtesy of

Another restaurant stock that’s been doing well on the stock market lately is Burger King Worldwide, Inc. (BKW).

This franchisor relisted as an equity security after being taken private by 3G Capital. The company’s 2013 fourth-quarter numbers show an improvement from the year’s performance.

Comparable sales on a global basis grew 1.7%, and system-wide sales improved 5.7% in constant currency.

With a restructuring taking place after going private, the fourth quarter of 2013 was very much an earnings story, and they improved substantially.

The company’s net income grew to $66.8 million from $48.6 million in the comparable quarter. Net earnings per diluted share improved $0.05 to $0.19 per share.

Positive corporate results among restaurant stocks are an indicator on consumer spending. Countless stocks in this sector have gone up in anticipation of improving financial results.

Many are richly priced and are due for a correction. Corporate reporting among many restaurant stocks indicates improving business conditions, but the stocks that have been doing well are very much due for a correction.

The stock market is looking fatigued, and many of the market’s top winning positions are rolling over. Companies are and have been reporting financial results that beat the Street on just one financial metric—earnings or revenues. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”)

It’s all just another signal that it’s time to take some money off the table and book profits from non-blue chip positions.