Investors get a reason to celebrate as the big businesses announce a repurchase of their own stock.
As the cash reserves are soaring high with funds, there has been an outbreak of share buyback announcements by several of the big businesses in the past few months. Some of the business honchos that have ventured in the field include Fortune 500 companies like Applied Materials, Qualcomm, DirecTV, The Gap, Lowe's and Philip Morris. All these companies have expressed interest in the repurchase of their own shares worth at least $1 billion.
PepsiCo is the one to enter the scene in the most recent times by announcing a buyback of up to $15 billion of its own shares. The biggest buyback announcement was made on Monday, 15th March. The news shot up the shares of Pepsi by 1.5% and that came as music to the ears of investors. This is so because, when a company is willing to invest in its own shares, it signifies confidence. Also, the announcements come with an increase in earnings per share for the investors.
The buyback announcements also signal a recovery from the trying times of recession. "We just walked through the valley of capital death where cash was king and debt was troubling. Dividend payments and share repurchases at many companies were cut back or shut off," said David Ikenberry, associate dean, College of Business at the University of Illinois.
Paul Nolte, Managing Director with Dearborn Partners, suggested that the impact could be gradual and minimal and advised to observe the shrinking pattern of shares to see if the buybacks would really be having an impact on earnings.
