Toyota was among the first companies to announce its stock buyback after Alibaba’s announcement earlier in the week. Alibaba (ticker: BABA) unveiled its plans to repurchase 100 billion yen ($827 million) in just over six weeks.
Toyota said its buybacks would promote capital efficiency by more flexibly repurchasing its stock while at the same time taking its current price level into account. The Japanese automaker’s stock rose 4% in Tokyo trading and is currently 1.5% year to date. Toyota (ticker: 7203. Tokyo) ended Wednesday’s trading session at 12% off a recent high in January, following a prolonged slump.
Alibaba registered more success in its stock buyback. The Chinese e-commerce giant announced it would increase the size of its stock buyback program from $15 billion to $25 billion. According to the company, the move was a “sign of confidence about the company’s continued growth in the future.”
It seems that Citi analysts agree with the company’s sentiments and said it suggests that “management sees the current share price as undervalued and attractive.”
Investors seemed to agree with Alibaba’s Hong Kong-listed stock surging more than 11% Tuesday and 6.7% Wednesday following the announcement. The American depositary receipts also jumped 11% Tuesday and were roughly 1% higher in Wednesday premarket trading in the U.S.
There’s a wide range of factors forcing stocks to decline currently:
- The Federal Reserve’s tightening of controls
- Russia’s invasion of Ukraine
- Global supply constraints
The case might be that companies are aware of the opportunities to buy back shares at lower prices, given the current market conditions.
Earlier this month, Amazon.com (ticker: AMZN) announced it would buy back $10 billion shares- the company’s first set of buybacks since 2012. General Electric (ticker: GE) also announced plans to repurchase $3 billion worth of shares.
However, this trend isn’t new and can be traced to as far back as the fourth quarter of 2021, when S&P 500 companies bought back a record $270.1 billion shares, up 15% from the previous quarter. Buybacks in 2021 reached an astonishing $881.7 billion, a 70% jump from 2020 figures.
S&P Dow Jones indices hold the expectation that buybacks could continue to even higher levels in the first quarter of 2022, despite the price decline “as reduced prices will increase the number of shares purchased and lift earnings-per-share due to share reduction.”
According to a senior analyst at Howard Silverblatt, the expectation was that the first quarter would set a new record, but the months ahead were more uncertain.
“Beyond Q1, however, it is unclear, as inflation and the Russian- Ukraine conflict may reduce excess buybacks,” he said. “Given the strong base buying, expected earnings, even with a potential consumer slow-down and lower margins, buybacks could set another record in 2022,” Silverblatt added.
In certain instances, Buybacks can be an indication of a company’s confidence in its ability to execute. According to David Kostin, a Goldman Sachs strategist, “buybacks have historically been a signal for executions in the subsequent year.”