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Economy Title: Bulls Increase With Buyback Spending Signaled by Profits Surge April 5 (Bloomberg) -- U.S. companies are sitting on a record pile of cash after spending the lowest proportion of their profits on stock buybacks since 2003, a sign that repurchases may propel the equities rally as earnings recover. Buybacks by companies in the Standard & Poor’s 500 Index totaled $137.6 billion last year, or 28 percent of operating profit, according to S&P. The last time the ratio dropped to that level, the S&P 500 subsequently climbed for four years. U.S. firms will almost double their spending on stock repurchases to $235 billion in 2010 as earnings surge, according to Mizuho Financial Group Inc. S&P 500 companies, excluding financials, that bought their own stock in fiscal 2009 have rallied an average of 7 percentage points more than the index since the start of last year as the purchases reduced the supply available to investors, according to Bloomberg data. More than 200 U.S. companies from PepsiCo Inc. to United Technologies Corp. have announced buyback plans this year, data from Birinyi Associates Inc. show, as the S&P 500 extended its one-year surge to 74 percent. “The acceleration of buybacks is a positive,” said Eric Teal, who oversees $4.5 billion as chief investment officer at First Citizens BancShares Inc. in Raleigh, North Carolina. “It’s showing that the recovery is translating itself into an expansion.” Repurchases by S&P 500 companies increased during the third and fourth quarters of last year, the first consecutive gains since 2007, as the economy pulled out of its deepest recession since the Great Depression and a record nine quarters of profit declines ended. S&P 500 Earnings Gross domestic product grew at a 5.6 percent annual rate during the fourth quarter, the fastest since 2003, the Commerce Department said March 26. Employers added 162,000 jobs last month, the most in three years, Labor Department data showed on April 2. S&P 500 earnings will surge 50 percent from last year to a record $93.86 a share in 2010, according to the average analyst estimates in a Bloomberg survey. S&P 500 companies are turning to share buybacks after cash climbed to a record $831.2 billion at the end of the fourth quarter, according to data from New York-based S&P that goes back to 1980. That was the fifth straight increase from the prior quarter. Cash represents 11.4 percent of assets at companies outside the financial industry, the highest level in more than 50 years, according to Tokyo-based Mizuho. “There’s cash sitting there, waiting to come in later, which will then later help buoy both businesses and stocks,” billionaire Kenneth Fisher, who oversees more than $35 billion as chairman of Fisher Investments Inc. in Woodside, California, told Bloomberg Television in an interview last week. “This bull market will carry on for several years.” Pepsi, United Technologies PepsiCo rallied the most in a month on March 15 after the Purchase, New York-based maker of Frito-Lay snacks said it plans to buy as much as $15 billion in stock by 2013. That’s the biggest repurchase announced this year, according to Birinyi. The world’s largest snack maker will spend about $4.4 billion on its shares this year after suspending the program in 2009. United Technologies, which ended 2009 with the most cash in at least 22 years, said on March 10 it plans to buy $4.3 billion in stock. Shares of the Hartford, Connecticut-based maker of Pratt & Whitney jet engines have gained 3.3 percent since then, compared with a 2.8 percent advance in the S&P 500. The increase in stock repurchases last year wasn’t enough to offset share sales and options-related issuance tied to executive compensation. The share count for S&P 500 companies rose 4.5 percent in the final three months of 2009 compared with the third quarter, data compiled by S&P show. Bank Bailouts Bank of America Corp. of Charlotte, North Carolina, and New York-based Citigroup Inc. used equity offerings to repay U.S. government bailout funds. Excluding financial firms, the number of shares of S&P 500 companies rose 0.6 percent. “Buybacks are simply a means of keeping dilution to a minimum,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania. “Most companies have tended to buy back their stock at any price.” While share repurchases demonstrate optimism among company executives, record amounts may also signal overconfidence that might lead to declines in equities, according to Harris Private Bank’s Jack Ablin. Buybacks surged 36 percent to a record $589.1 billion in 2007, S&P data show. The S&P 500 rallied to an all-time high of 1,565.15 in October 2007 before plunging 57 percent through March 2009. ‘From 30,000 Feet’ “It’s a good indicator of management confidence at the company level, but when you take a step back and you look from 30,000 feet and you see a bunch of buybacks, then it’s more a sign of overconfidence,” said Ablin, who oversees $55 billion as chief investment officer of Chicago-based Harris. “The good news today is we’re not at that extreme. I would peg management confidence as somewhere between sanguine to optimistic, but certainly not ebullient.” Companies can reward investors by repurchasing stock when prices are cheap, Warren Buffett, the billionaire chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc., said in a 1984 letter to shareholders. The S&P 500 is valued at 15.1 times this year’s projected earnings of its companies, and 12.6 times 2011 profits, Bloomberg data show. The compares with an average ratio of 20.6 times reported earnings since 1991. Buffett’s Holdings ConocoPhillips, the third-largest U.S. oil producer, said March 24 that it would repurchase $5 billion in shares during the next two years. The authorization by the Houston-based company is the third-largest in the U.S. this year, data from Birinyi show. ConocoPhillips is Berkshire’s ninth-largest holding, based on the share price today of the portfolio that Buffett disclosed in a regulatory filing in February. NRG Energy Inc. the second-largest power producer in Texas, WellPoint Inc., the biggest U.S. health insurer by enrollment, and 50 other companies in the S&P 500 are reducing their shares outstanding by at least 1 percent, according to S&P. NRG is based in Princeton, New Jersey, while WellPoint is located in Indianapolis. The S&P 500’s rally since March 2009 marked the first phase of a bull market that will last into 2013, according to Birinyi. The pace of buyback announcements since Dec. 31 may lead to more than $400 billion in plans by the end of 2010, the most behind 2006 and 2007, the Westport, Connecticut-based money-management and research firm founded by Laszlo Birinyi said in a March 5 report. “It’s a big positive when the companies buy it back because it indicates they have the cash and they’re using it,” said Hugh Johnson, who oversees more than $1.7 billion as chairman of Albany, New York-based Johnson Illington. “It’s exactly what happens in a bull market.”
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#1. To: Boofer (#0)
Buybacks have never been a false positive. Ever.
#67. To: war (#48) Keep hiding behind the bozo, bozo. (laughing) You've always been a world class pussy. Badeye posted on 2010-01-14 16:12:48 ET Reply Trace
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