US buybacks hit a record in Q1. Could they continue through 2022?
- US buybacks hit record levels
US companies announced more than $300 billion in new buybacks in the first quarter, with March seeing a robust year-over-year increase, suggesting buyback activities have sustained resilience in recent weeks, according to financial data firms EPFR and Informa Financial Intelligence.
New buybacks announced in March reached about $74 billion, up from $54 billion in March 2021, Informa Financial Intelligence analyst Winston Chua said, reported by Reuters.
- Will buybacks continue to drive up share prices?
Big buyback programs were deemed crucial in sustaining the long-term bull market over the past few years. Would these buybacks continue through 2022? Could they boost the market as they have in the past? That has been a concern for investors.
For one thing, some companies' efforts to shore up investor confidence may end up having only limited success, as recessionary fears implied by an inverted yield curve have left investors relatively negative about the company's prospects.
On the flip side, abundant cash reserves and proper operating efficiency are foundations for repurchasing shares and bringing additional dividends to investors. However, maintaining cash reserves and operating efficiency can be challenging during a recession for companies.
Analysts expected that the growth rate of $S&P 500 index(.SPX.US)$ companies' earnings should be at 6.4% in the March quarter, according to I/B/E/S data from Refinitiv, compared to over 30% growth in the prior quarter.
For one thing, some companies' efforts to shore up investor confidence may end up having only limited success, as recessionary fears implied by an inverted yield curve have left investors relatively negative about the company's prospects.
On the flip side, abundant cash reserves and proper operating efficiency are foundations for repurchasing shares and bringing additional dividends to investors. However, maintaining cash reserves and operating efficiency can be challenging during a recession for companies.
Analysts expected that the growth rate of $S&P 500 index(.SPX.US)$ companies' earnings should be at 6.4% in the March quarter, according to I/B/E/S data from Refinitiv, compared to over 30% growth in the prior quarter.
FactSet's Q1 2022 outlook of the S&P 500 is gloomier, with earnings growth of 4.7% (pre-revised: 5.7%), possibly the slowest since Q4 2020 (3.8%), and a 10.7% revenue growth rate.
Buybacks may slow if companies decide to use cash for capital spending or comply with tax rules stemming from government stimulus, said Bank of America.
On Monday Apr. 4, 2022, $Starbucks (SBUX.US)$ said it would pause billions of dollars of stock buybacks to "to invest more profit into our people and our stores — the only way to create long-term value for all stakeholders" when the company faces rising worker discontent.
In the event of sluggish investment sentiment or deteriorating economic development, some companies may choose to save or spend money on projects that benefit the company's long-term development, except for very cash-rich, undervalued companies that may insist on buybacks.
After all, a company's long-term stock price is mainly affected by its operating performance, not the buybacks. So keep an eye out for companies that can support buybacks and even post strong earnings in the upcoming earnings season.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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103047546 : Companies buy back their own shares, generally speaking
Inject additional buying and liquidity into your secondary market stocks to reduce the risk of being heavily shorted
Send a message to the outside world that the company's share price is undervalued.
Reduce total equity, push up share prices, and reduce valuation multiples (e.g. price-to-earnings ratio PE, etc.)
PlutoMoo102685100 103047546 : Buy backs high== stock undervalued from company pov?
Logically it makes sense
Will be interesting to see if buy backs are leading or trailing indicators of recession
thisway39 : yea
RDK79 : Guess they ‘could’. But maybe not too…
KHINHSUHLAING :
Jovani Martinez : Rocket_JMco