Birinyi Associates data pointed out that the scale of treasury stocks authorized by U.S. companies in 2022 hit a record high, showing that even the growing threat of economic recession cannot dampen the enthusiasm of companies to buy back their own stocks.
According to Birinyi data, last year US companies announced that they would execute treasury stocks of US$1.26 trillion, an annual increase of 3%, setting a record high, of which the corporate execution rate was 82%, and the actual repurchase expenditure was about US$1.03 trillion.
The pledge to implement the treasury stocks helped temper pessimism on Wall Street as companies retrench spending in response to a slowing economy.
“Even though 98 percent of CEOs surveyed said they were worried about a recession, they’re still willing to spend money on stock buybacks. Are they really that worried?” said Jeff Rubin, director of research at Birinyi. Barring a severe recession, he said, Otherwise, it is not surprising that companies repurchase US$1 trillion or more of stocks a year.
However, the political and academic circles do not take seriously the actions of companies to spend money to buy back stocks. They believe that companies have excess cash, and it is best to use it in areas that can help promote long-term growth of the company, such as employee benefits or equipment upgrades.
Fund managers have also called on business leaders to rein in spending, amid concerns that aggressive rate hikes by the Federal Reserve could lead to a U.S. recession and hurt corporate profits. According to the latest Bank of America survey, 56% of professionals want corporate CEOs to focus on strengthening their balance sheets, while only 16% are in favor of stock repurchases.
There is no telling whether the buyback boom will continue. Goldman Sachs released a report last November predicting that treasury stock repurchase activities will decline by 10% in 2023, and may even drop by 40% if the economy falls into recession.
Some have questioned whether companies are using buybacks to offset the dilution effect of granting stock to employees, but Rubin said that while some companies do do so, most buybacks are primarily done to reduce turnover. Number of shares outstanding.
Still, skepticism remains about the staying power of buybacks. As this week’s earnings season is about to be kicked off by bank stocks, more and more companies will enter a blackout period for treasury stock buybacks.
Christophe Barraud, chief economist and strategist at Market Securities, said that buying from repurchases is unlikely to resume in the short term because of the current buyback blackout, and he also believes that corporate buybacks this year will not perform better than last year.
