
S&P 500 Buybacks: Top Q4 Earnings-Boost Stocks
NEW YORK (
) -- Stock buybacks by S&P 500 companies increased 128% in the third quarter. For some S&P 500 stocks, a fourth quarter earnings boost could be the byproduct of the buyback bonanza.
Stock buybacks within the S&P 500 hit $79.5 billion in the third quarter, as compared to $34.9 billion in the third quarter last year. It's the fifth quarter in a row that S&P 500 companies have increased their share-repurchase activity.
>>Third Quarter S&P 500 Buybacks Jump 128%
There's an important distinction to be made between the S&P 500 companies buying back the most of their shares, and the S&P 500 companies that are actively reducing share count through buyback activity. It's the active reduction of share count quarter over quarter -- and versus the prior year same quarter -- that provides the earnings boost per share. There are also some companies buying back increased amounts of shares because as stock price has appreciation, there are expectations of increased options exercising by executives.
Microsoft
(MSFT) - Get Report
was No. 1 overall in the third quarter 2010 in total dollar value of shares repurchased, and it's often at or near the top of the S&P 500 buyback list. Technology as a sector typically leads in buybacks because of the level of compensation paid out in stock grants.
Hewlett-Packard
(HPQ) - Get Report
and
IBM
(IBM) - Get Report
round out the Top 3 among S&P 500 buyback kings.
Standard & Poor's senior index analyst Howard Silverblatt noted in his review of the 2010 stock buyback data that an increasing number of companies have completed share buybacks in excess of their internal use for employee options and M&A. The finding means companies reporting a higher rate of increase for EPS than their aggregate net income.
For example, if a company makes $1 billion and has one billion shares outstanding, earnings per share are $1. However, if the company reduces share count by 5% to 950 million, the same net income will result in an EPS value of $1.05.
"The practice of share count reduction was very popular in the 2005-2007 time period, but has fallen out of fashion due to both the recession and liquidity concerns. For the third quarter share count reductions of at least 2% have picked up considerably, relative to where they have been, with the cumulative change in shares outstanding since the end of 2009 for at least 45 issues in the S&P 500 are now sufficient enough to impact their fourth quarter earnings per share," Silverblatt noted in S&P's quarterly buyback report.
The S&P index analyst added, "Given the lack of
share count reduction impact over the past several years, I have some concern that Street earnings estimates may not reflect the lower share count, with the result being that initial EPS reports will appear to have beaten their estimates, and the quick market reaction being an upswing in the stock price."
The fourth quarter earnings boost factor comes into focus when the S&P 500 data is analyzed comparing outstanding shares in the fourth quarter 2009 versus the end of the third quarter 2010. On this basis, there are 10 S&P 500 companies that have reduced their share count by approximately 10% or more in the past year headed into fourth quarter earnings. What follows is a ranking of the Top 10 S&P 500 companies likely to see a fourth quarter earnings boost as a result of decreased share count.
No. 10 Share Reduction Among S&P 500 Companies
Gap
(GPS) - Get Report
Q3 2010 Shares vs. Q$ 2009:
626 million/676 million shares
Percentage reduction in shares since Q4 2009:
-9.7%
No. 9 Share Reduction Among S&P 500 Companies
Advanced Microdevices
(AMD) - Get Report
Q3 2010 Shares vs. Q$ 2009:
713 million/791 million shares
Percentage reduction in shares since Q4 2009:
-9.9%
No. 8 Share Reduction Among S&P 500 Companies
MedcoHealth Solutions
(MHS)
Q3 2010 Shares vs. Q4 2009:
437 million/487 million shares
Percentage reduction in shares since Q4 2009:
-10.3%
No. 7 Share Reduction Among S&P 500 Companies
D.R. Horton
(DHI) - Get Report
Q3 2010 Shares vs. Q4 2009:
319 million/356 million shares
Percentage reduction in shares since Q4 2009:
-10.6%
No. 6 Share Reduction Among S&P 500 Companies
Bristol-Myers Squibb
(BMY) - Get Report
Q3 2010 Shares vs. Q4 2009:
1.7 billion/2 billion shares
Percentage reduction in shares since Q4 2009:
-12.3%
No. 5 Share Reduction Among S&P 500 Companies
Travelers Companies
(TRV) - Get Report
Q3 2010 Shares vs. Q4 2009:
472 million/540 million shares
Percentage reduction in shares since Q4 2009:
-12.6%
No. 4 Share Reduction Among S&P 500 Companies
WellPoint
(WLP)
Q3 2010 Shares vs. Q4 2009:
402 million/461 million shares
Percentage reduction in shares since Q4 2009:
-12.8%
No. 3 Share Reduction Among S&P 500 Companies
AutoNation
(AN) - Get Report
Q3 2010 Shares vs. Q4 2009:
150 million/174 million shares
Percentage reduction in shares since Q4 2009:
-14.1%
No. 2 Share Reduction Among S&P 500 Companies
Interpublic Group of Companies
(IPG) - Get Report
Q3 2010 Shares vs. Q4 2009:
534 million/631 million shares
Percentage reduction in shares since Q4 2009:
-15.4%
No. 1 Share Reduction Among S&P 500 Companies
Biogen
(BIIB) - Get Report
Q3 2010 Shares vs. Q4 2009:
242 million/287 million shares
Percentage reduction in shares since Q4 2009:
-15.5%
-- Written by Eric Rosenbaum from New York.
RELATED STORIES:
>>Third Quarter S&P 500 Buybacks Jump 128%
>>Top 10 S&P Stock Buybacks of 2010
>>Top 10 Most Impactful Stock Buybacks of 2010
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