Monitoring the market for share buybacks in 2023 has been likened to ‘watching paint dry’, as even the Q3 earnings season failed to ignite confidence.
With the cost of equity and debt capital far higher than a year ago, investors reportedly prefer company executives to shore up balance sheets. This environment has driven down the number of buyback announcements.
The year as a whole is on track to be the weakest year for buyback announcements, while Q4 is well below all quarters in Wall Street Horizon’s (WSH) tracking history. The firm began monitoring buyback announcements in 2016.
A nugget of optimism
Despite the higher cost of capital, WSH says in a note that ‘firms that executed share repurchases recently could prove to have been wise [as] we are closing in on two years since the S&P 500’s all-time high and many stock prices are depressed. Indeed, Bank of America noted last week that its corporate clients were heavy buyers of the recent market dip – that’s at least one nugget of optimism.’
WSH also points to three surprises on the buybacks announcement scene: Snap, which beat analyst expectations on earnings to push shares from $10 when it released its Q3 earnings to $12 mid-November, with management reportedly authorizing a $500 mn buyback plan. Dating app Bumble, which recently announced that Whitney Wolfe Herd, founder and former CEO, will be moving into a new role, has seen stock prices tumble this year. Shares closed down more than 4 percent on the announcement, having already fallen 38 percent year to date. Even so, the Austin, Texas company announced a doubling of its share buyback program to $300 mn.
The third surprise came from Ferrari, which WSH describes as having ‘trounced earnings expectations for several quarters in a row’. Total shipments of 3,459 units were up 8.5 percent compared with Q3 2022, with WSH noting ‘the richest sliver of the global consumer market shows few signs of a spending slowdown’.
Within its ‘record profit report’, Ferrari announced the fourth tranche of a multi-year share buyback plan, with the intention of repurchasing approximately Є2 bn ($2.18 bn) of stock by 2026 in aggregate. The fourth tranche, which began earlier this month, has a capacity of Є350 mn.
The macro outlook
Despite these notable mentions, the market remains slow and WSH says the likelihood of a 2024 bounce-back depends largely on macroeconomics.
‘Strategists on Wall Street are publishing their 2024 outlooks, and the big question is whether a US recession strikes,’ writes the company in a note. ‘Thus far, the jobs market is hanging in there while solid, though slowing, retail spending is a healthy sign. Meanwhile, the rate of inflation is clearly coming closer to the Fed’s target.
‘Some certainty that central banks are through with interest rate hikes would be music to the ears of those in the C-suite and could allow for more aggressive capital allocation plans in the coming quarters.’