Sunday, June 10, 2007

Stock Buybacks Continue At A High Level

Last week, Standard & Poor's reported buyback activity actually accelerated in the first quarter of 2007. S&P estimates $117.7 billion was the level of buyback activity in the first quarter versus $100.2 billion recorded in the first quarter of 2006.

(click on chart for larger image)

stock buyback and dividend chart. June 10, 2007
Howard Silverblatt, senior Index Analyst at Standard & Poor's notes:
“Authorized buybacks and corporate actions are now matching up much better, with companies aggressively following through on authorizations. However, if companies wish to get the same level of impact on EPS as they did in prior years, they will have to invest more. With today’s higher share prices, the same buyback dollar doesn’t buy as many shares and therefore doesn’t reduce the share count by as much as it did in previous years.”
The interesting aspect of Howard Silverblatt's statement is the "impact on EPS" that is occurring as a result of the large buyback activity. It is estimated that nearly 50% of the growth in EPS in 2007 will come from the effect of lower share count on EPS. Investors will need to pay particular attention to company financial reports before they are converted to per share data to assure oneself growth is occurring on an absolute basis.

S&P also notes that since the buyback activity picked up in the 4th quarter of 2004, 58% of the S&P 500 companies have fewer shares now than at the beginning of 4Q 2004. They also cite the fact the top ten companies implementing buybacks account for 31% of all buybacks for the 12-months ending 3/31/2007.


S&P 500 1st Quarter Buyback Activity Sets Record at $118 Billion (pdf)
Standard & Poor's
By: Howard Silverblatt & David R. Guarino
June 8, 2007

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