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Companies Mull Suspending, Ramping Up Share Buyback Plans Amid Coronavirus

Finance chiefs are grappling with whether to make share repurchases or hold on to cash as stock prices fall on fears surrounding the coronavirus pandemic.

The S&P 500 has plummeted about 25% since Feb. 18. Some companies appear to be taking advantage of the down market, announcing plans to scoop up shares. Others, however, have said they would suspend share buyback plans to preserve cash and exercise caution in an uncertain period.

“The buybacks really now have to compete again with companies’ other priorities,” said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Companies often buy their own shares in an effort to help boost earnings per share and stock prices. But companies need to stay sufficiently capitalized to resist financial hits from economic conditions spurred by the pandemic. In some instances, businesses have opted to raise cash by drawing down credit facilities with lenders. To help unclog the financial system, the Federal Reserve on Sunday cut its benchmark interest rate to near zero and took steps to prevent market disruptions.

The Financial Services Forum, which represents the biggest U.S. lenders and custody banks, on Sunday said the banks would suspend buybacks after the rate cut, in a move to help consumers and businesses struggling with the rapid economic slowdown.

“It’s not a situation where you want to test the boundaries,” Jens Lund, the finance chief of European freight forwarder

DSV Panalpina

A/S, said in an interview. DSV on Monday said it decided to temporarily suspend buybacks until it had a better overview of the virus’s financial implications. “Right now, it’s a situation where you want to be safe,” Mr. Lund said.

Gap Inc.,

Nordstrom Inc.,

Southwest Airlines Co.,

Alaska Air Group Inc.,

Northern Trust Corp.,

Comerica Inc.,

PNC Financial Services Group Inc.,

Capital One Financial Corp.,

BankUnited Inc.,

Regions Financial Corp.,

and

Fifth Third Bancorp

are among the other companies that have announced intentions to halt buybacks since early last week.

Since markets recovered from the financial crisis of 2008, buybacks served as a major source of equity demand. Companies spent excess cash on buybacks and on funding mergers and acquisitions, dividend payouts or other capital expenditures.

Twenty-three companies in the S&P 500 announced they would suspend their programs so far this year, up from none in 2019, according to equity research firm Birinyi Associates. Companies’ authorization of future buybacks through March 17, totaling about $153 billion, marked a 39% drop from the same period a year ago, according to data from Birinyi Associates.

Market volatility created by the coronavirus pandemic has led to lower levels of cash balances amid a drop-off in demand caused by the outbreak.

Gap, which warned that recent volatility is making it difficult to analyze its business, is trying to be prudent with expense and inventory management and capital spending as the company navigates the period of uncertainty, Gap’s incoming chief executive, Sonia Syngal, said on an earnings call on Thursday.

Companies are expected to increasingly scale back or halt buyback plans, said Torsten Slok, chief economist at Deutsche Bank Securities.

Meanwhile, companies such as Chinese e-commerce giant

JD.com Inc.,

business software company

Oracle Corp.,

building-products maker

Patrick Industries Inc.,

real-estate investment trust

NexPoint Residential Trust Inc.

have in the past week authorized stock repurchases.

The recent market correction in equities provides a window for businesses to repurchase more of their stock at lower prices. “It’s basically gone on clearance sale in the past few days, and we think it’s an enormous—it’s a fantastic investment,” Safra Catz, chief executive of Oracle, said on a Thursday earnings call.

The companies that might want to ramp up share buybacks feel as though they have enough cash, which could be viewed by investors as a sign of strength in difficult times, Mr. Slok said.

Investors expect companies to be clear about their capital allocation strategies and they understand that share buyback decisions vary by company, said Ken Bertsch, executive director at the Council of Institutional Investors.

“We don’t know how bad this could get,” Mr. Bertsch said. “So if I were a CFO, I’d err on the side of caution at the moment.”

Write to Mark Maurer at [email protected] and Kristin Broughton at [email protected]

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