Share repurchases for 2020 projected to see ‘complete reversal’ of 2018 boom as buyback recovery should be slow even after stock market bottoms
Stock buybacks by S&P 500 index companies are expected to go from being “significantly” lower in the first quarter to being “dismal” in the second quarter, as companies look to preserve cash given uncertainties over the impact of the COVID-19 pandemic, according to S&P Dow Jones Indices.
For all of 2020, S&P said share repurchases may see a “complete reversal” of the 2018 “buyback bonanza,” when companies repurchased a record $806.4 billion worth of stock. That’s a complete about face from earlier this year, as pre-coronavirus outbreak estimates were for repurchases to come close to or exceed 2018 levels.
“COVID-19 has significantly changed the 2020 landscape, as dividends are under pressure and buybacks appear to be gasping for air,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. He said buybacks now have to compete with companies’ other priorities, as uncertainty over liquidity is at its highest since the 2008 financial crisis. Read the coronavirus update.
And any government economic stimulus package and corporate bailout program will likely include restrictions on share repurchases.
Chevron Corp. CVX, +22.74% and Intel Corp. INTC, +5.68% , both components of the Dow Jones Industrial Average DJIA, +11.36% , were among companies that announced suspensions of buyback programs on Tuesday. Read more about Chevron and Intel.
Before the coronavirus crisis hit, companies had already been pulling back from the tax cut-inspired buying of 2018, as companies may have also been reluctant to pay such high prices as the stock market soared. Shares repurchases in the fourth-quarter of 2019 reached $181.6 billion, but that was down 18.6% from the Q4 2018 record of $223.0 billion.
The S&P 500 index SPX, +9.38% reached 22 record closes during Q4 2019, as it rose 8.5% during the quarter to end the year 29.9% higher than where it closed 2018. During Q4 2018, the S&P 500 didn’t register a single record close, and hit a 20-month low in December as it fell 14% for the quarter.
For all of 2019, companies bought back $728.7 billion worth of shares, down 9.6% from 2018, but the total was the second-most in history. And the buying was still very effective, as 20.8% of the companies were able to reduce share counts by at least 4% and therefore boost earnings per share.
But that doesn’t mean companies will rush to buy back stock after they start seeing a recovery from the COVID-19 impact on the economy and the stock market.
“Once the market believes we have hit bottom, buybacks may be slow to come back,” Silverblatt said, “as companies set their catch-up priorities and may stringently control expenditures amidst:
–Potential restrictions on buybacks through government programs.
–Public image of buybacks when the economy is still recovering.”
Here are the 5 companies that spent the most on buybacks in Q4 2019:
• Apple Inc. AAPL, +10.03% spent $22.1 billion in the fourth quarter, the third-highest amount in history. The amount was 25.2% more than the $17.6 billion Apple spent during the third quarter, and more than double the $10.1 billion it spent in Q4 2018. For 2019, Apple bought $81.7 billion worth of its shares, up from $74.2 billion in 2018.
• Bank of America Corp. BAC, +16.31% bought back $7.7 billion worth of its shares, up slightly from $7.6 billion in the third quarter. For the year, BofA repurchased $28.1 billion worth of its share, up from $20.1 billion in 2018.
• Oracle Corp. ORCL, +8.26% repurchased $5.0 billion worth of its shares, down from $5.5 billion in the third quarter. For 2019, Oracle spent $26.9 billion on buyback, down from $29.3 billion in 2018.
• Wells Fargo & Co. WFC, +14.53% spent $7.4 billion on buybacks, just below the $7.5 billion its spent in the third quarter. For the year, Wells Fargo spent $24.8 billion, up from the 2018 total of $21.0 billion.
• J.P. Morgan Chase & Co. JPM, +11.89% bought back $6.8 billion worth of its stock, down from $6.9 billion in the third quarter. For 2019, J.P. Morgan paid $24.0 billion to repurchase shares, up from $20.0 billion in 2018.