Here comes the stock buyback explosion: Goldman Sachs

·Anchor, Editor-at-Large
·2-min read

With corporate cash balances looking flush again as businesses recover from the depths of the COVID-19 pandemic, Goldman Sachs (GS) strategist David Kostin thinks a stock buyback "bonanza" is on the horizon. 

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), according to Goldman's research. 

"Commentary suggests that the main drivers of this increase are excess cash on balance sheets and positive sentiment on the back of strong financial performance," Kostin says. 

S&P 500 (^GSPC) companies currently have a record high $2.7 trillion in cash on their balance sheets, according to data from Bloomberg Intelligence. 

And to be sure, some of the country's biggest companies are wasting no time in throwing money at buybacks as a means to juice their stock prices further. Stock buybacks have the effect of reducing the number of shares outstanding, which pumps up earnings per share and usually a company's stock price. 

Tech heavyweight Apple (AAPL) 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 (TRV) recently lifted its stock buyback plan by $5 billion.

Meanwhile, others in Corporate America have signaled a strong desire to repurchase shares in coming quarters. 

"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 (NFLX) 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 (JPM) CEO Jamie Dimon said on an April 14 earnings call. In late December 2020, JPMorgan authorized a new $30 billion stock buyback plan. In the first quarter, the company repurchased $4.3 billion of its stock. 

POLAND - 2021/02/07: In this photo illustration a Goldman Sachs logo seen displayed on a smartphone screen with stock market graphic on the background. (Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images)
POLAND - 2021/02/07: In this photo illustration a Goldman Sachs logo seen displayed on a smartphone screen with stock market graphic on the background. (Photo Illustration by Omar Marques/SOPA Images/LightRocket via Getty Images)

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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