The month of August saw more corporate buyback authorizations than at any point since Feb. 2008.
According to a report by Birinyi Associates, there were 198 new buyback authorizations last month. The last time the market saw buyback activity that significant was more than three years ago when corporations announced 199 buybacks the February before the financial crisis hit.
Rob Leiphart, an analyst at Birinyi, said the volatility in August helped prompt many companies to order buybacks. He also pointed out that businesses have plenty of cash on their balance sheets but don’t want to embark on new expansions.
"As we can see from the economic numbers, job hiring and that sort of thing isn’t picking up," Leiphart said. "Companies are flush with cash, and they’re looking for something to do with that cash, and buybacks provide the maximum amount of flexibility."
The surge in buybacks should help to boost volumes as corporations with bulging pockets turn to their brokers.
"These companies want to deploy the cash, so the brokers that they hire to buy back their shares are going to be deploying that cash for them," Leiphart said.
Leiphart believes the buyback trend will continue in coming months, especially if market volatility remains high.
Lowe’s Companies, CVS Caremark, Celgene Corp., Covidien, Intuit, Discovery Communications, Harris Corp. and Lockheed Martin all announced buybacks of $1 billion or more in August. In announcing their buyback programs, many companies have specifically said they think their stock is undervalued.
According to Leiphart, the fact that companies are embarking on share buybacks shows they still have high hopes for the near term.
"If companies believe that there?s still a light at the end of the tunnel for their company’s earnings next quarter, then maybe the picture isn?t as dire as some of the economic data is leading us to believe," Leiphart said.
