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Corporations have authorized a record $319 billion in stock repurchases as of 28 March, compared to $267 billion for the same period last year, Goldman Sachs reported.
This surpasses the previous record of $234.5 billion in stock buybacks, set in last year’s third quarter, as we reported in “Corporate Stock Buybacks Set Record” (21 Dec 2021).
Companies that recently made their first stock issues also are buying their shares.
Usually, recently listed firms use their cash to fund operations and expansion. However, share prices have dropped so much that many of these companies find their shares at bargain prices.
The stock price of companies listed in the small-cap Russell 3000 index has lost an average of 30 percent so far this year, the Financial Times noted.
Reducing the number of shares in circulation can boost demand for a stock and also increase earnings per share, often a key factor in determining executive bonuses.
Earnings per share are expected to fall this year, pushed down by inflation, ongoing shortages of materials, higher labor costs, and disrupted supply lines, the FT said.
“The breadth of different industry groups buying stock is the highest we’ve seen in a few years and volumes have increased,” Michael Voris, Goldman Sachs’ chief of structured equity, told the FT.
“That’s much more due to the market backdrop as opposed to anything else,” he added.
“Companies expect things will continue to be fairly positive so they’re using their cash to buy back shares instead of keeping it on the balance sheet,” Craig McCracken, co-head of equity capital markets for Wells Fargo, said in an FT interview.
Many companies are speeding their purchases of large blocks of their stock while prices are still low, the FT said.
“Accelerated repurchases send a strong signal to shareholders because the cash is committed to buy the stock upfront,” Voris pointed out.
The repurchases are buoying earnings for investment banks, which have seen their fee earnings sag because stock offerings and other capital-raising activities have slackened, according to the FT.
TREND FORECAST: As we noted in “Corporations Return to Buying Their Own Stock” (18 May 2021), stock buybacks enrich shareholders and executives and leave less of a company’s funds to invest in research, development, new equipment, new products, and in paying their workers enough to keep up with inflation.
As the economy moves from slowdown to recession to our Top 2022 Trend of Dragflation, the buyback trend will fade, removing this false support from equity prices, which will slide as stock supplies outstrip demand.