Corporations announced plans to repurchase more than $50 billion of their shares in recent days, a vote of confidence after last week's financial-market turmoil.
Corporations announced plans to repurchase more than $50 billion of their shares in recent days, a vote of confidence after last week’s financial-market turmoil.
While some experts say the announcements may continue, they come when actual repurchases have declined significantly.
Indeed, after the announcements early in the week, General Electric said Thursday it is suspending its buyback program.
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In the second quarter, buybacks among companies in the S&P 500 nearly halved from the year-earlier quarter.
Although buyback authorizations shore up confidence, they can be retracted and by no means guarantee rewards to shareholders.
“I think talk is cheap,” says Jack Ablin, chief investment officer at Harris Private Bank. “I’d like to actually see them go in and buy the shares.”
Microsoft (MSFT) said Monday its board approved a plan to repurchase another $40 billion of shares, after completing a plan to buy back the same amount.
Hewlett-Packard (HPQ) authorized $8 billion more for buybacks, and Nike (NKE) said it would repurchase $5 billion of stock over four years.
Buybacks reduce shares outstanding and can boost per-share earnings. They can also stabilize shares in a volatile market or represent a value play when a company believes its stock is underpriced.
The S&P 500 is down 15 percent this year.
After the 1987 stock-market crash, a wave of companies rushed to repurchase shares to take advantage of depressed prices and shore up demand for their stock.
Howard Silverblatt, senior index analyst at Standard & Poor’s, acknowledges some analysts are skeptical about the recent announcements. “What we saw [Monday] was authorization.” Actual fulfillment will depend on market conditions and perception, he said in a statement.
To be sure, the companies that announced buyback plans have cash-rich balance sheets and have indeed been buying back stock. But in the second quarter, they tightened their purse strings.
“Cash, at least for nonfinancial issues, also grew during the period, demonstrating the cautious approach many companies have to cash commitments,” Silverblatt says.