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US companies cut back on buyback plans: TrimTabs

[NEW YORK] The value of stock buyback announcements from US companies slowed to their lowest level in four years, TrimTabs Investment Research said on Tuesday, potentially undercutting one of the main drivers of the current bull market.

At US$1.8 billion a day, the amount of buyback announcements from US companies during the nearly completed second-quarter earnings season is tracking to the lowest since the summer of 2012, according to TrimTabs, which compared six-week periods during which companies report quarterly results.

The number of companies announcing buybacks has also fallen, averaging 3.3 a day so far in the quarter, the lowest since the third quarter of 2013 and well below the 6.1 per day during earnings season a year ago.

"Buyback activity has been disappointing in earnings season," said David Santschi, chief executive officer of TrimTabs. "The reluctance to pull the trigger on share repurchases suggests corporate leaders are becoming less enthusiastic about what they see ahead."

Stock buybacks prop up share prices as a decrease in the number of shares outstanding boosts earnings per share, and have been an important factor in propelling the market to record highs.

The latest buyback data shows the continued sluggish pace of repurchases this year. According to TrimTabs, the total amount of announced buybacks through July is down 21 per cent from the same period a year ago.

"It's not a good sign" for the stock market, Mr Santschi said.

"Buyback volume has a fairly high correlation with stock prices."

Five companies have announced buybacks of at least US$3 billion during the current earnings season, TrimTabs said, including US$5 billion plans from Biogen, Visa and CBS.