Post New

AutoZone revealed a stunning fact in its September earnings call:

'We have bought back over 100% of the then outstanding shares of stock since our buyback inception in 1998, while investing in our existing assets and growing our business.'

In 1998, the year AutoZone began its repurchase program, the company had 152 million shares outstanding. AutoZone has since repurchased a total of 154 million shares at an average price of $219, for a total investment of $33.8 billion. Shares outstanding fell 8.2% per year, on average. The average repurchase price is 91% lower than AutoZone's current $2,500 per share price.

This is incredible from a variety of perspectives. First, it is an example of excellent capital allocation. Second, it implies that AutoZone has been structurally mis-priced for decades. Third, AutoZone's $46 billion market capitalization shows the true cost of stock compensation.

Companies like Berkshire Hathaway and Constellation Software are remarkable because they have almost not capital allocation 'leakage.' They pay their employees in cash so that their share count holds steady.

These are some of the best performing stocks of all time, so I don't buy the idea that employees need to be paid in cash so that they feel they have skin in the game. Skin in the game is different when you've spent your own money on shares versus when you've been given shares.

https://eaglepointcapital.substack.com/p/autozone-...

This is incredible from a variety of perspectives. First, it is an example of excellent capital allocation. Second, it implies that AutoZone has been structurally mis-priced for decades. Third, AutoZone's $46 billion market capitalization shows the true cost of stock compensation.

It is pretty astounding. If I understand correctly, it could be viewed this way:
In effect, all the original 1998 shareholders were bought out, and the company remaining after that cash left the building was entirely given to the employees. It is all now owned either by the employees, or the people to whom the employees have sold? Ick.

Meanwhile Berkshire has retired already all the shares issued for BNSF, and more.

Jim

If I understand correctly, it could be viewed this way:
In effect, all the original 1998 shareholders were bought out, and the company remaining after that cash left the building was entirely given to the employees. It is all now owned either by the employees, or the people to whom the employees have sold? Ick.

That's one way of looking at it. But presumably some of the shares repurchased along the way were shares issued to employees as stock-based compensation along the way. So, in practice, while some shares would have been recycled through the market (perhaps even repeatedly), presumably some of the original 1998 shareholders simply held on (or people who purchased their shares from those original shareholders held on). It looks like, in the last 25 years, the price of AutoZone stock is up 100X (give or take a little, depending on the specific date you look at in October 1998). Could AutoZone have done even better if it had not issued shares as stock-based compensation? Maybe so. But according to the linked post, even with that "capital 'leakage,'" the "[s]hares outstanding fell 8.2% per year, on average"; "[t]he average repurchase price is 91% lower than AutoZone's current $2,500 per share price"; and "AutoZone has compounded at 19% per year since 1998 despite slight multiple contraction (21x to 17x, 0.8% per year)." I find that hard to criticize.

Don't get me wrong: I'm a big fan of the fact that Berkshire's share repurchases actually reduce the number of shares outstanding one-for-one. But I'd be willing to live with a little capital "leakage" if it meant that each one of my B shares was worth $33,500 (and each A share was worth $51M) in 25 years.

Companies like Berkshire Hathaway and Constellation Software are remarkable because they have almost not capital allocation 'leakage.' They pay their employees in cash so that their share count holds steady.

I think all companies should be forced to pay all employees in cash, all the time. Completely up to them how they calculate the amount, so they could simulate option or stock purchases if they want, use profit-share calculations, whatever, but the cash-flow statement would then have an unambiguous record of the cost of employees.

SA

Post New

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.