US Companies are Buying Up Record Amounts of Their Own Shares

Goldman Sachs
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It’s the stock market equivalent of a self-help pep talk. Believe in yourself, buy yourself.

It’s called the share buyback, and it’s also an increasingly popular tactic among companies as stock markets wobble, new Goldman Sachs data suggests. A record run is underway of firms hoping to capitalize on their own belief that they’re undervalued.

One Less Mouth to Feed

With the blue-chip S&P 500 down 5% this year and the Russell 3000 index down 6%, there are plenty of management teams feeling undervalued by the market. On one hand, broader markets have priced in both inflationary pressure and supply chain snags that, collectively, will put downward pressure on future earnings. On the other, according to analysts, are management teams that feel they have an opportunity to juice per-share earnings with attractive buyback programs (buybacks take shares out of circulation, decreasing the denominator in the EPS equation).

Craig McCracken, co-head of equity capital markets at Wells Fargo, told the FT, “It’s a sign of the underlying strength, that 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.” That confidence is leading to aggressive behavior:

  • Ziprecruiter, which sold shares to the broader public in its IPO just one year ago, is turning around and using that same cash to buy those same shares right back — initiating a $5 million ASR last week (it’s worth noting the company is trading 26% higher than its IPO price). Fintech Upstart kicked off its $400 million buyback program as shares are currently down 75% from recent highs.
  • Companies are increasingly using “accelerated share repurchases” (ASRs), which skip the queue of conventional repurchases that often take years to complete. Over $33 billion worth of ASRs have been placed in 2022, according to research firm Sentieo, nearly four times the amount in the first quarter of 2021.

A record $319 billion of share buybacks have been authorized in 2022 so far, compared to $267 billion at the same point last year, according to Goldman Sachs.

Who’s Buying? Companies big and small, winners and losers. Profit machine Apple spent $85.5 billion on buybacks in its 2021 fiscal year, and struggling Meta spent $44.5 billion – perhaps proving self-confidence is facing no shortage in Silicon Valley.