Stock buybacks may be peaking, removing “a potential pillar of support” for earnings per share in 2023, according to RBC Capital Markets.
“The dollar value of share buybacks has been receding, and the percent of companies reducing their share counts on a year-over-year basis has returned to past highs,” said Lori Calvasina, head of U.S. equity strategy at RBC, in a note Monday. “Our earnings model assumes the net share count in the S&P 500 will remain flat” with levels seen in the third quarter through the end of next year, according to her note.
A new tax looms over buybacks, while companies also are facing higher borrowing costs, making funding share purchases with debt more expensive.
“Few are focused at all on a point I brought up last week: corporate buybacks – a major catalyst for the bull market since the Great Financial Crisis – will likely be dramatically reduced going forward because of a new 1% excise tax on them taking effect on Jan. 1, as well as corporations no longer being able to issue almost cost-free debt (like they had been able to for several years) to finance those buybacks,” according to a note Monday from Rick Bensignor, president of Bensignor Investment Strategies.
“That will be a huge bullish element that will be missing going forward,” he wrote.
Buybacks totaled $981.6 billion over the 12 months through September, “down from the record $1.005 trillion posted for the June 2022 period,” according to an emailed note Monday from Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices.
“Buybacks remained top heavy,” he said in the note, pointing to the top 20 companies accounting for 49% of share repurchases in the third quarter.
Google parent Alphabet Inc.
Meta Platforms Inc.
and Exxon Mobil Corp., Procter & Gamble Co.
Marathon Petroleum Corp.
and Nvidia Corp.
and Chevron Corp.
ranked as the top 10 companies for buyback volume over that period, his note shows. Oil and gas producer Exxon Mobil
returned to the top …….