Corporate buybacks this year may reach their highest level since the start of the financial crisis, escalating debate over the wisdom of using hundreds of billions of dollars to temporarily improve quarterly results.
Even if the total profit does not change, buybacks increase earnings per share (Earnings Per Share, EPS) by reducing the number of securities in circulation. The main focus of analysts and investors is not usually on the total profit margin., namely EPS.
Buybacks criticized by some fund managers, including Larry Fink - CEO of Blackrock (assets under management 4,5 trillion dollars). In his opinion, some companies are too keen on buyouts and do nothing for long-term business prosperity. Politicians pay attention to the problem too. Democratic presidential candidate Hillary Clinton called for more and more full disclosure of company operations. That being said, some activist investors see buybacks as a way to return money to investors..
According to Birinyi Associates, in the first nine months of the year, American companies spent 516,72 billion dollars to buy back own shares, at the same time, there are still no final figures for the third quarter. This amount is the largest in the first three quarters, since 2007. If the rate of redemptions continues in Q4, 2015 a record year since the start of the financial crisis.
Buyouts have a significant impact on companies' results - Microsoft's quarterly results illustrate this perfectly (NASDAQ: MSFT), Wells Fargo (NYSE: WFC), Pfizer (NYSE: PFE) и Express Scripts Holding (NASDAQ: ESRX). For the last 12 months Microsoft bought 3% their shares. At the end of the third quarter, the company's profit decreased by 1,3% compared to the same period last year, however, earnings per share increased by 3,1%.
In the case of Wells Fargo, the increase in total profits by 0,6% led to an increase in EPS by 2,9%. At Pfizer, increasing profits by 2% caused a jump in EPS by 5,3%. The profit of the Express Scripts pharmacy chain grew by 2,8%, while EPS increased by 12,4%.
At the moment Apple (NASDAQ: AAPL) - the largest buyer of own shares this year. The Cupertino company spent 30,22 billion dollars. It is followed by Microsoft, Qualcomm (NASDAQ: QCOM) и American International Group (NYSE: AIG).
The total volume of buybacks this year is unlikely to exceed 2007. However, Birinyi data show, that the announcements of planned future buyouts are the highest in the first 10 months of any year, including 2007. Birinyi analyst Robert Liphart says:
“If companies make their plans come true, in the next few years we will witness record amounts, spent on buybacks ".
Some experts have been predicting a slowdown for a long time, however, there are still few signs of this. Thursday Nike Corporation (NYSE: NKE) announced the repurchase of shares in the amount of 12 billion dollars over the next four years. Previous program of the company size 8 billion ends in May 2016.
Taking into account record amounts of cash in corporate accounts and extremely low interest rates, Financing buyouts with equity or debt is becoming widespread.
Senior Index Analyst S&P Dow Jones Indices Howard Silverblatt says:
«For 12 months to September inclusive more 20% S companies&P 500 reduced the number of shares outstanding by at least 4% ".
In this way, III quarter became the seventh in a row, when at least 20% companies from S&P 500 bought at least 4% their shares. This process can have a noticeable effect on the EPS value..
According to Silverblatt's calculations, 12% companies from the S index&P 500 bought back so many of their own shares, that their EPS by the end of Q4 will grow by 4%, even if the total profit does not change and they do not repurchase any more shares.
Last year, the average profitability of equity in corporate accounts was only 1,3%, what makes them look for new ways to invest.
Sometimes, buybacks can push stock prices higher by simply increasing demand.. Most Heavyweight Buyers Have Rises This Year: Apple paper has risen in price by 8,1%, Microsoft - on 16,7%. However, not everyone is so lucky.. Qualcomm shares fell by 33,2%, Oracle (NYSE: ORCL) - on 12,5%, biotech company AbbVie (NYSE: ABBV) - on 6,6%.
Some critics claim, что выкупы представляют собой скрытые издержки, related to bonuses to the management of shares or options. Награждая руководителей сертификатами на акции или опционы, компания обычно выкупает соответствующее число бумаг на открытом рынке, препятствуя увеличению их общего количества. При этом в балансе выкупы обычно не относятся к затратам на компенсации.
Аналитики хотят большей прозрачности компаний. Now the practice of buyouts allows management to “get more, чем отражено в графе „компенсации“ отчета о прибылях и убытках», — таковы итоги исследования, conducted in October by the investment and analytical company Research Affiliates.
Один из авторов отчета Марк Клементс отмечает, что зарплата руководителей иногда также зависит от роста EPS, что служит дополнительным стимулом к проведению выкупов.
В целом критики сходятся во мнении: buyouts - artificial, краткосрочный метод повышения прибыли. Иногда активный выкуп бумаг проводится в кварталы со слабыми результатами — налицо банальное манипулирование прибылями.
В обращении к компаниям генеральный директор Blackrock Ларри Финк пишет, что «все большее число корпоративных лидеров» прибегают «к уловкам вроде выкупов или дивидендов, seeking to increase the immediate benefit of shareholders, при этом сокращая инвестиции в инновации, квалифицированные трудовые ресурсы или капитальные затраты, необходимые для поддержания долгосрочного роста».
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