Goldman Sachs strategist David Kostin thinks a stock buyback “bonanza,” led by Apple, is on the horizon with corporate cash balances flush again as businesses recover from the various and sundry responses to COVID-19.
Kostin estimates a 35% increase in share buybacks this year and a 5% pop in 2022. Share buybacks from U.S. companies through April have tallied $484 billion, more than double the pace at this same point last year. It marks the quickest pace of U.S. buyback announcements to kick off a year since 2016 ($400 billion).
Tech heavyweight Apple just authorized the repurchase of an additional $90 billion in stock following a banner first quarter of iPhone, iPad and AirPod demand. Insurance giant Travelers recently lifted its stock buyback plan by $5 billion.
“We don’t intend to build up a bunch of excess cash on the balance sheet… and we think that share buybacks are a way to return value to shareholders in a way that is responsible steward of capital, but also maintain a level of balance sheet flexibility for us to continue to be strategic,” Netflix CFO Spence Neumann told analysts on an April 20 earnings call. Netflix has a $5 billion stock buyback authorization in place, and plans to begin buying back shares in the second quarter.
“We’re buying back stock because our cup runneth over,” JPMorgan CEO Jamie Dimon said on an April 14 earnings call. In late December 2020, JPMorgan authorized a new $30 billion stock buyback plan.
MacDailyNews Take: Add up all of the planned stock buybacks of the three companies mentioned (Travelers, Netflix, and JPMorgan) and, totaling $40 billion, they don’t even add up to half of Apple’s massive buyback plan. As of January 2021, prior to Apple’s latest $90 billion increase, Apple had spent $380 billion to repurchase 10.6 billion shares at an average price of $35.80 per share since starting share repurchases in 2013.
“When looking back at Apple’s share buyback activity, one event stands out: passage of the Tax Cuts and Jobs Act of 2017. Prior to U.S. tax reform, Apple was constrained in terms of the amount of cash that could be spent on buyback. The company was penalized for bringing foreign cash back to the U.S. to fund share buyback,” Neil Cybart writes for Above Avalon (“Apple Won the Share Buyback Debate”). “Apple kept share buyback to a $30 billion to $45 billion per year pace despite having more than $150 billion of net cash on the balance sheet. Following U.S. tax reform, Apple was able to repatriate its foreign cash at more attractive tax rates. Apple’s share buyback pace shot higher and has been trending at $70 billion per year.”