Share Repurchases Account For Largest Share of S&P 500 Cash Spending, Though Capex Also Surging
MT NEWSWIRES 9:02 AM ET 9/17/2018
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09:02 AM EDT, 09/17/2018 (MT Newswires) -- Share repurchases have accounted for the largest share of cash spending by S&P 500 for the first time in 10 years, but that doesn't mean companies aren't increasing capital expenditures as well, Goldman Sachs said in a note to clients.
S&P 500 revenue rose by 11% in the first half versus the same timeframe a year earlier, the bank's analysts said in their note. Earnings climbed by 25% as firms benefited from the lower corporate tax rate. Cash flow from operations jumped 35% to $917 billion in the first half.
Capital spending has accounted for the bulk of cash spending by S&P 500 firms in 19 of the past 20 years, but that's not the case in 2018. Buybacks increased 48% to $384 billion during the first half versus the year-ago period, Goldman said.
"Furthermore, 2018 share repurchase authorizations for all US companies have totaled $762 billion through mid-September and our buyback desk estimates repurchase authorizations will set a new full-year record and surpass $1 trillion," the bank said.
That's not to say capital spending has been completely forgotten about. Capex during the first half rose by $55 billion to $341 billion, the analysts said. If companies continue this pace, it'd be the fastest growth in capital expenditures in at least 25 years, Goldman said.
Spending on research and development rose by $18 billion, or 14%, in the first half to $147 billion, the fastest rate in more than a decade. That's up from the usual growth rate of 6% to 10% annually in each of the past eight years.
Capex growth also has been more broad-based than buyback growth as expansion for the median S&P 500 firms was 11% in the first half, well below 19% in aggregate. Repurchases by the median company, meanwhile, grew at just a fourth of the pace of the aggregate index in the first half, Goldman said.
The 10 companies with the largest capex increases boosted spending by 79%, accounting for 53% of the aggregate rise in S&P 500 capital expenditures, the bank said. Google(GOOG) increased its capex by $7 billion in the first half of 2018, more than doubling it to $13 billion. Facebook(FB) , Microsoft(MSFT) , Intel(INTC) and Micron Technology(MU) were the top five contributors to capex growth, accounting for more than a fifth overall.
The top 10 stocks with the largest dollar increases in repurchases accounted for 78% of aggregate growth in buybacks in the first half. Apple(AAPL) accounted for 24% of overall buybacks by S&P 500 companies, spending $45 billion to buy shares. Amgen(AMGN) , Cisco(CSCO)Abbvie(ABBV) and Oracle (ORCL) were the top five companies in terms of share buybacks, Goldman said. |
