2021 may go down as the year of the re-emerging stock buyback (and SPAC or Special Purpose Acquisition Company), if one is to read the tea leaves from some of the largest players in Corporate America.
The return of the stock buyback has been front and center in the early going of the current earnings season. Investment bank UBS announced a new $4.5 billion stock buyback plan on Tuesday, joining the likes of JPMorgan and Goldman Sachs, among Wall Street banks, returning to the market for their stock in the first quarter.
On Monday, tissue maker Kimberly-Clark (KMB) unveiled a new $5 billion stock buyback plan.
The activity comes on the heels of Netflix saying last week it will “explore” stock buybacks this year. Consumer products giant Procter & Gamble (PG) raised its full-year buyback authorization to $10 billion from $7 billion to $9 billion previously.
Companies buying back stock right now isn’t a major surprise amidst the ongoing COVID-19 pandemic, believe it or not.
For starters, well-run consumer staple companies such as Procter & Gamble and Kimberly-Clark have seen sizable boosts in their business during the pandemic. But oddly, each consumer products company has seen their stocks not do much this past year (both have underperformed the S&P 500). So, armed with a ton of new cash, why not buy back a potential undervalued stock as it’s likely that business momentum continues in coming quarters.
“The strength of the entire income statement, from sales to earnings and then the cash flow that is occurring,” P&G Vice Chairman and CFO Jon Moeller told Yahoo Finance Live on the reasons behind its boosted buyback plan.
Meanwhile, there are many companies out there currently that resemble Netflix (NFLX). The company has watched its business surge during the pandemic as people consume more streaming content. Costs have been kept at bay due to COVID-19 restrictions hurting content production. Those factors have greatly improved Netflix’s cash flow profile, and now have it on the hunt to buy back its stock.
To be sure, buybacks were among the first things companies stopped doing at the start of the pandemic as a means to preserve cash.
Buybacks by S&P 500 companies plunged 44% to $102 billion in the first nine months of 2020, according to data from S&P Global. Full-year 2020 S&P 500 buybacks are projected (fourth quarter numbers not yet released) to be $511 billion, down 30% from the prior year.
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