Wall Street Horizon has closely monitored the trend in corporate buybacks throughout 2023. It has been a bit like watching paint dry given the lack of activity, and the Q3 earnings season didn't bring about a whole lot of confidence for an immediate turnaround. Investors continue to prefer that company executives shore up balance sheets, and the costs of equity and debt capital are much higher compared to year-ago levels.(1)
Is there hope on the horizon? Will next year mark a buyback bounceback? Maybe it all depends on how the macro picture unfolds. Strategists on Wall Street are publishing their 2024 outlooks, and the big question is whether a U.S. recession strikes. 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.(2) Some certainty that central banks are through with interest rate hikes would be music to the ears of those in the C-suite, and that could allow for more aggressive capital allocation plans in the coming quarters.
A Year to Forget
For now, 2023 is set to mark the weakest year of global corporate buyback announcements since we began tracking this metric in 2016. Firms that executed share repurchases recently could prove to have been wise since 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.(3)
Interestingly, our team spotted three companies you might not consider to be in a strong position to initiate and continue buyback programs.
Another Weak Quarter of Share Repurchase Announcements
Source: Wall Street Horizon
Bullish Chats
Snap Inc (NYSE: SNAP) has been on a heater lately. Shares were under $10 in advance of the Communications Services sector company's Q3 earnings report on October 24. Analysts expected a negative EPS print, but SNAP printed positive per-share profits and year-on-year revenue growth of better than 5%.(4) Along with reporting a 12% jump in daily active users, the management team authorized a new $500 million buyback plan.(5)
SNAP was volatile the following trading day, perhaps on the heels of what seemed to be significant caution urged by the firm regarding the onset of the war in the Middle East. Another unknown was (and is) how corporate ad spending could be impaired should an economic slowdown occur.
Still, maybe it was more of a 'watch what we do, not what we say' approach taken by investors. The impressive share repurchase plan may have overshadowed the geopolitical jitters. $3.6 billion of cash added improved the quality of the popular messaging company's balance sheet.(6) The stock rallied to above $12 by mid-November.
SNAP 1-Year Stock Price History: A Major Q4 Rally
Source: Chart courtesy of StockCharts.com(7)
Swiping Right
SNAP might be turning around what has been a frustrating year among investors in the stock, but one of its sector peers has not held up as well amid tighter financial conditions.
Shares of Bumble Inc (NASDAQ: BMBL) are down more than 40% from a year ago. The stock wavered after a mixed third-quarter report earlier this month, but ultimately BMBL bulls defended the $12 to $13 range, and it now flirts with breaking a multi-month downtrend. Q3 GAAP EPS of $0.12 was better than expected while revenue came in slightly below the consensus estimate.(8) App Paying Users, an important metric for the popular dating app company, increased 25% to 2.6 million from year-ago levels and 147,000 sequentially.(9)
Along with solid growth figures, the Austin-based social network company announced a $300 share repurchase program. "Our conviction in the long-term trajectory of our business is reflected in the increased share repurchase authorization and our commitment to return capital to shareholders," said Anu Subramanian, CFO of Bumble.(10)
Pay attention to the company's Q4 2023 results due out (date unconfirmed) on Wednesday, February 21 AMC as, according to a survey conducted by Dating.com, the November through February period is the seasonal peak in online and app-based dating.(11)
Bumble 1-Year Stock Price History: Not Much to Love
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Source: Chart courtesy of StockCharts.com(12)
A Bull Market on Wheels
Bringing up the rear in this third-quarter earnings season buyback review is a stock accelerating to the 2023 finish line. Ferrari N.V. (NYSE: RACE) is higher by more than 60% on the year as the ultra-high-end luxury automobile manufacturer within the Consumer Discretionary sector has trounced earnings expectations for several quarters in a row. The $64 billion market cap firm was in the spotlight this month on CNBC(13), and last weekend's Las Vegas Grand Prix was undoubtedly positive media exposure.
Ferrari shifted into high gear in the quarter just completed. Q3 operating EPS of Є1.82 beat the Є1.66 consensus forecast while revenues powered higher by 23% year-on-year. Total shipments of 3,459 units were up 8.5% compared to Q3 2022(14) as the richest sliver of the global consumer market shows few signs of a spending slowdown.
Within the record profit report, RACE announced the fourth tranche of a multi-year share buyback plan. It intends to repurchase approximately Є2 billion of stock by 2026 in aggregate, with the fourth tranche's capacity being Є350 million, which began on November 8.(15)
Ferrari 1-Year Stock Price History: A Thrilling Ride
Source: Chart courtesy of StockCharts.com(16)
The Bottom Line
Corporate buyback announcements continue to be relatively sparse among companies across sectors internationally. Executing share repurchases over recent months might have been well timed, but higher costs of capital and the threat of a possible Fed-induced 2024 recession likely leave companies uneasy about aggressively reducing share counts.
1 Global Fund Manager Survey, BofA Global Research, Michael Hartnett, November 14, 2023, https://rsch.baml.com
2 US inflation has steadily cooled. Getting it down to the Fed's target rate will be the toughest mile, The Associated Press, Christopher Rugabear, August 8, 2023, https://apnews.com
3 BofA Securities Equity Client Flow Trends, BofA Global Research, Jim Carey Hall, November 14, 2023, https://rsch.baml.com/access?q=q8dIlT8S31s
4 Snap Non-GAAP EPS of $0.02 beats by $0.07, revenue of $1.19B beats by $80M, Seeking Alpha, Gaurav Batavia, October 24, 2023, https://seekingalpha.com
5 Snap shares seesaw amid concerns about the war's effect on advertising, CNBC, Jonathan Vanian, October 24, 2023, https://www.cnbc.com
6 Snap Inc. Announces Third Quarter 2023 Financial Results, Snap Inc., October 24, 2023, https://investor.snap.com
7 SNAP Snap Inc., StockCharts, November 16, 2023, https://schrts.co
8 Bumble reports mixed Q3 earnings; initiates Q4 outlook, Seeking Alpha, Meghavi Singh, November 7, 2023, https://seekingalpha.com
9 Bumble reports mixed Q3 earnings; initiates Q4 outlook, Seeking Alpha, Meghavi Singh, November 7, 2023, https://seekingalpha.com
10 Bumble Inc. Announces Third Quarter 2023 Results, Bumble Inc., November 7, 2023, https://ir.bumble.com
11 Dating.com Found That Online Activity Hits Peak Season During Cold Winter Months, PR Newswire, Dating.com, September 26, 2019, https://www.prnewswire.com
12 BMBL Bumble Inc, StockCharts, November 16, 2023, https://schrts.co/nAvNvwgZ
13 Ferrari again raises guidance as customers opt for high-priced, personalized sports cars, CNBC, John Rosevear, November 2, 2023, https://www.cnbc.com
14 Another Record Quarter Sustaining Upward Revised Year-End Outlook, Ferrari N.V, November 2, 2023, https://www.ferrari.com
15 Ferrari N.V.: Announcement of the Fourth Tranche of the Multi-Year Share Repurchase Program, Global News Wire, Ferrari N.V., November 7, 2023, https://ml-eu.globenewswire.com
16 RACE Ferrari NV, StockCharts, November 16, 2023, https://schrts.co ​
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