- Companies are slowing their buyback activity and keeping a powerful stock price stimulant from investors, The Wall Street Journal reported Monday.
- US corporations authorized $122 billion in repurchases through February, roughly one-half of sum seen in the year-ago period.
- Repurchase programs have lagged since peaking in 2018, and the downtrend could accelerate as firms shore up cash amid rising coronavirus risks.
- Cash flows and corporate credit health are key metrics to monitor when deciding which firms will outlast the outbreak and its economic fallout, PIMCO recently warned clients.
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Companies are cutting back on their buyback programs in 2020 and depriving investors of a key portfolio cushion amid markets' dizzying downturn, The Wall Street Journal reported Monday.
US firms authorized roughly $122 billion in stock repurchases through February, The Journal reported, citing Birinyi Associates research. The figure is just half the amount seen in the year-ago period. Decreasing buybacks in the wake of a new oil-price war and the intensifying coronavirus crisis would place an additional burden on the already-sinking stock market.
The buyback total for 2019 is not yet finalized as some public firms haven't reported fourth-quarter earnings. S&P Dow Jones Indices estimates the final quarter of 2019 to show an 18% reduction in year-over-year buyback activity, according to The Journal.
Stock buybacks are typically used to support lofty prices. The action shrinks the number of shares outstanding and, in turn, lifts earnings per share. Despite a decline in such programs through 2019, buybacks still served as one of the stock market's largest inflows and helped drive the S&P 500's 29% yearly gain.
The 2020 total could face additional pressure as firms look to pad cash flow. Experts have pointed to cash reserves and credit health as key indicators for companies' ability to outlast the coronavirus' economic fallout.
The outbreak has caused numerous supply chain disruptions, and increased quarantine activity would likely stifle demand. Near-term recession in the US and Europe is a "distinct possibility" if corporations aren't able to raise fresh capital from investors, Joachim Fels, global chief adviser at Pacific Investment Management Co., said.
"We are concerned about potential cracks in the US credit cycle in an environment of dwindling corporate cash flows, which could lead to a sharp tightening of financial conditions that feeds back into the real economy," Fels wrote in a note to clients.
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