How will the increased $500MM share repurchase plan affect VCTR's earnings per share and price-to-earnings ratio?
Short answer
An additional $500 million of share‑repurchase capacity will generally raise Victory Capital’s diluted earnings‑per‑share (EPS) because the same amount of earnings will be spread over fewer shares. All else equal, a higher EPS pushes the price‑to‑earnings (P/E) ratio down (because the denominator is larger). In practice the market usually reacts positively to a buy‑back, so the stock price may also move higher; whether the P/E ends up higher or lower then depends on how much the price appreciates relative to the EPS boost.
Below is a step‑by‑step explanation of why that happens, the mechanics you can use to estimate the magnitude of the effect, and the factors that could modify the outcome.
1. The mechanics of a share‑repurchase
| Step | What happens | Accounting impact |
|---|---|---|
| 1️⃣ | Company uses cash (or other assets) to buy its own outstanding shares on the open market. | Cash (an asset) is reduced and treasury stock (a contra‑equity account) is increased. |
| 2️⃣ | Those shares are cancelled (or held in treasury). | The share count that is used in per‑share calculations (basic & diluted shares outstanding) falls. |
| 3️⃣ | Net income (or adjusted net income) for the period is unchanged (the buy‑back does not affect earnings directly). | EPS = Net Income ÷ Shares Outstanding → denominator smaller → EPS rises. |
| 4️⃣ | Market price may rise because: • The buy‑back signals management’s confidence that the stock is undervalued. • The reduction in float can create buying pressure. • The company’s balance sheet looks stronger (more cash returned to shareholders). |
P/E = Share Price ÷ EPS → if price stays flat, P/E falls; if price climbs, the net effect on P/E depends on the relative size of the price increase vs. the EPS increase. |
2. Rough quantitative illustration (using plausible assumptions)
Because the press release does not disclose the current share count or the market price, we can only illustrate with example numbers that you can replace with the actual figures once they are known.
| Variable | Assumed value (illustrative) |
|---|---|
| Current diluted shares outstanding (pre‑buy‑back) | 45 million |
| Adj. diluted EPS (Q2) | $1.57 |
| Implied adjusted net income for the quarter | 45 M × $1.57 ≈ $70.7 million |
| Current share price (closing price near the announcement) | $30 |
| Repurchase budget announced | $500 million |
2.1 How many shares could be bought?
[
\text{Shares repurchased} = \frac{\$500\text{ M}}{\$30\text{ per share}} \approx 16.67\text{ million shares}
]
2.2 New share count
[
\text{New diluted shares} = 45\text{ M} - 16.67\text{ M} \approx 28.33\text{ M}
]
2.3 New EPS (assuming the same quarterly earnings)
[
\text{New EPS} = \frac{\$70.7\text{ M}}{28.33\text{ M}} \approx \$2.50
]
That is an ≈ 59 % increase in EPS (from $1.57 to $2.50) purely from the share‑reduction effect.
2.4 Effect on the P/E ratio (price unchanged)
[
\text{Old P/E} = \frac{\$30}{\$1.57} \approx 19.1
]
[
\text{New P/E (price unchanged)} = \frac{\$30}{\$2.50} \approx 12.0
]
So, ceteris paribus the P/E would drop by roughly 37 % because earnings per share have risen.
2.5 If the buy‑back also lifts the share price
Buy‑backs commonly generate a modest price bump. Suppose the market reacts and the share price climbs 5 % to $31.50.
[
\text{New P/E (price up)} = \frac{\$31.50}{\$2.50} = 12.6
]
Even with a 5 % price increase, the P/E is still significantly lower than the pre‑buy‑back level because the EPS boost is larger than the price gain.
3. Real‑world modifiers
| Factor | How it can change the outcome |
|---|---|
| Actual share price at the time of repurchase | If the stock trades higher than our $30 example, fewer shares will be bought for $500 M, which reduces the EPS uplift. Conversely, a lower price magnifies the effect. |
| Timing of the buy‑back | The $500 M is a maximum authorization – the company may spread purchases over many months. The immediate impact on Q2 EPS may be limited if most of the buy‑back occurs after the filing date. |
| Net income growth or decline | If earnings rise in the next quarters (as the company may anticipate due to “strengthening financial condition”), EPS could increase even more. If earnings fall, the EPS benefit from the share reduction could be partially offset. |
| Market perception | A repurchase can be interpreted as a sign that management believes the stock is undervalued, which can push the price up enough to offset the EPS‑driven P/E compression, or even cause the P/E to rise if the price reaction is strong. |
| Tax considerations & accounting rules | Some jurisdictions treat repurchases differently for EPS calculations (e.g., treasury‑stock method vs. “basic‑only” EPS). Victory Capital follows U.S. GAAP, so the diluted EPS number already incorporates the effect of any shares held as treasury stock. |
| Outstanding convertible securities | Diluted EPS also assumes that potentially convertible securities (options, warrants, convertible debt) are exercised. A repurchase reduces the pool of shares that would be issued upon conversion, further improving diluted EPS. |
4. Bottom‑line answer to the question
Earnings per share (EPS) – The $500 million authorization lets Victory Capital buy back a substantial amount of its own stock. By reducing the number of shares outstanding, the same amount of net income will be divided among fewer shares, so diluted EPS will rise. The magnitude of the increase depends on the current share price (which determines how many shares can be repurchased) and the total number of shares currently outstanding.
Price‑to‑earnings (P/E) ratio –
If the market price stays the same, a higher EPS makes the denominator of the P/E larger, so the P/E will fall.
If the market price climbs – which is a common reaction to a buy‑back – the P/E will move according to the relative size of the price increase versus the EPS boost. In most realistic scenarios (moderate price appreciation, sizable share‑count reduction), the EPS improvement outweighs the price rise, leaving the P/E lower than before the repurchase.
5. How to calculate the exact impact when the missing data become available
When Victory Capital later publishes its full quarterly balance sheet and share‑count figures, plug those numbers into the following simple formulas:
Shares repurchased
[
\text{Shares Repurchased} = \frac{\text{Buy‑back budget ($)}}{\text{Average share price during repurchase period}}
]New diluted share count
[
\text{New Shares} = \text{Current Diluted Shares} - \text{Shares Repurchased}
]New diluted EPS
[
\text{New EPS} = \frac{\text{Adjusted Net Income (or Adjusted Net Income & other items used for EPS)}}{\text{New Shares}}
]New P/E (using the market price at the same point in time)
[
\text{New P/E} = \frac{\text{Share Price}}{\text{New EPS}}
]
Compare the “new” numbers with the current $1.57 EPS and the existing P/E (price ÷ $1.57) to see the precise impact.
TL;DR
- The $500 MM share‑repurchase plan reduces the number of shares outstanding, so diluted EPS will increase (all else equal).
- A higher EPS pushes the P/E ratio down if the stock price does not change; if the price rises, the net effect on P/E depends on whether the price gain is smaller or larger than the EPS increase.
- In most realistic scenarios, the EPS uplift from a $500 MM buy‑back is sizeable enough that the P/E ratio will be lower after the repurchase, even after a modest price appreciation.
To quantify the exact change, substitute Victory Capital’s actual share price and share‑count figures into the simple formulas above once they are disclosed.