Even though the U.S. stock market has been hitting record highs this year, shares buybacks at American companies have declined by more than 20% compared with last year, according to Societe Generale.

"Perhaps over-leveraged U.S. companies have finally reached a limit on being able to borrow simply to support their own shares," Andrew Lapthorne, head of quantitative equity research at Societe Generale, wrote in a research note on Monday. Lapthorne did not immediately respond to additional questions.

Source: Societe Generale
Source: Societe Generale

Recent low borrowing costs provided firms an opportunity to repurchase their own shares, increasing earnings-per-share (EPS) and elevating the market value of the remaining shares. The Federal Reserve, however, has raised interest rates three times since December and is forecasting another rate hike, signaling the end of ultra-low borrowing costs. Policy makers are also estimating three additional quarter-point rate increases in 2018.

Still, there are some American companies that have announced share buybacks this year, including Yelp Inc. (YELP) , Domino's Pizza Inc. (DPZ) and Papa John's International Inc. (PZZA)  .

In August, Yelp announced a $200 million share buyback program, "which represents nearly 40% of Yelp's approximately $500 million cash position," analysts at JPMorgan wrote in a research note. The firm said Yelp remains its favorite smaller mid-cap name and raised its price target by $9 to $46 while maintaining its overweight rating. YELP shares were trading at $41.65 around midday on Tuesday.

Pizza maker Papa John's surprised shareholders with its levered buyback announcement on Aug. 2, which sent the stock up about 12.5%. The company said it was raising its leverage over the next year and would repurchase $500 million in shares.

Similarly, Domino's Pizza entered into a $1 billion accelerated share repurchase agreement in August as part of its $1.25 billion buyback program.

"At the current share price of $192, this could drive a 5 million reduction in share count through 2018 (10% to 11% of float)," wrote Jefferies equity analyst Alexander Slagle in an Aug. 2 research note. Slagle said that the accelerated share repurchase is expected to be completed by the fourth quarter of 2017.

Given the expected accretion related to these transactions, Jefferies raised its 2017 and 2018 EPS targets to $5.70 and $6.75, from $5.50 and $6.20, respectively. DPZ shares were trading at $189.61 at around 12 p.m. EDT on Tuesday.

Share buybacks provide the greatest flow into the U.S. equity market during this bull market, Bloomberg reported citing Credit Suisse. Repurchase programs could pick up, depending on President Donald Trump proposed tax reform plan that would lower the corporate tax rate and provide companies with repatriated cash to invest. A 2017 survey by Bank of America Merrill Lynch found that 46% of participants would use repatriated tax money for share repurchases. Forecaster Capital Economics estimates that American companies are holding $2.5 trillion abroad.

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