Friday, March 24, 2006

USAToday: share buybacks are rampant

Excess cash has translated into more share buybacks, says the USA Today. "Standard & Poor's 500 companies snapped up a record $349 billion of their own shares in buybacks last year, according to a report S&P will release today. That's greater than the market value of Microsoft. "

It makes you wonder though, if EPS growth is coming from decreasing denominators, is that really a bullish sign? Even the Oracle from Omaha questions the rampant share buyback trend in his annual letter. "This tendency for buybacks to goose EPS, regardless of the company's actual performance, encourages executives paid with stock options to do more buybacks, Warren Buffett wrote in his Berkshire Hathaway 2005 letter to shareholders."

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