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Buybacks have historically been a great way to boost stock prices and return value to shareholders, but the coronavirus crisis may have wiped out the hot trend.
As Congress lends help to some publicly traded companies, critics want those corporations to be banned from conducting stock buybacks. Regardless of mandates about the matter, Jefferies said share repurchases will slow going forward, as businesses have less cash on hand from the halt to the economy.
“Bye bye buybacks for quite some time,” Jefferies equity strategist Steven DeSanctis said in a note to clients. “The frenzy around the outrage over buybacks has calmed down, but we don’t believe companies will be talking about it anytime soon.”
The coronavirus downturn has changed the dialogue about buybacks on Wall Street. With unprecedented fiscal stimulus from the federal government and more being considered, many feel that companies should not be using that aid to boost stock prices by repurchasing shares. Even with new guidance making it harder for public companies to get funds, critics argue that buybacks synthetically push the per-share price higher and the move benefits corporate executives.
Many stocks that have benefited from the buyback boom in recent years, will no longer do so. Jefferies compiled a list for clients of companies that took advantage of buybacks by seeing stronger earnings growth, but had to raise leverage to do so. Therefore, once the repurchasing programs are gone, shareholders could be missing the yield they are used to.
“These stocks trade at higher valuations than the index on at least two of the three metrics we reviewed,” DeSanctis added. “We took names that were Hold or Underperform rated by our analysts.”
Here’s Jefferies’ list: