Stock Buybacks Still A Theme In 2019

Corporate share repurchase programs, or stock buybacks, had the best year ever in 2018 with over $900 billion in share buybacks.  That momentum is beginning to spill over into 2019.  Share repurchase programs are when a company buys back its own shares from the market with an objective to reduce the number of shares outstanding, helping to increase the value of the remaining shares.

One of the catalysts for corporations to buy back their own shares was President Trump’s Tax Cuts and Jobs Act signed on December 22, 2017, which lowered the corporate tax rate from 35% to 21%.  This change left many of the large-cap companies with very strong cash reserves. Large corporations could now increase wages, give bonuses, and announce buyback programs which could potentially reward shareholders with an elevated stock price.

Thus far, the two largest stock repurchase programs of 2019 have been Home Depot (Ticker Symbol: HD) and Cisco Systems, (Ticker Symbol: CSCOWealth Strength IndexCSCO is Extremely Flat and trending Up) which both announced a $15 billion share buyback program.  Let’s take a look at the charts and see how each stock has performed since announcing their buyback programs.

Home Depot’s stock rallied to an all-time high of just over $215.00 late in the third quarter of 2018.  Soon after, the stock took a sharp dive, declining over 25% into the end of the year.  At the beginning of 2019, Home Depot’s stock found some footing and has had a wonderful start to the year rallying over 15%.  In mid-January, HD was able to break through the downtrend that it had established from its peak at $215.00.  On February 26th, 2019, Home Depot announced its share repurchase program.  That same day, the stock announced weak guidance for 2019 which has put slight pressure on the share price.  Currently, Home Depot’s stock is finding support just above the 100-day Moving Average around $178.00.

(Chart above courtesy of ​​)

Based on a survey of 36 analysts across Wall Street, the average price target for Home Depot’s stock is $203.67.  Based on that average, the stock is priced at a discount relative to Wall Street’s analysts, currently trading at $182.86.

Cisco Systems spent most of 2018 as a trading range affair, trading within a twelve point range throughout the year. (highlighted in purple) The stock took off to a wonderful start to 2019, rallying back above its 200-day moving average just above $44.00.  On February 13th, 2019, Cisco announced its share buyback program. This catapulted the stock through the 2018 highs of 49.50 and sent the stock surging into new price levels the stock hasn’t seen in almost two decades.

(Chart above courtesy of ​​)

Based on a survey of 36 analysts across Wall Street, the average price target for Cisco System’s stock is $54.82.  According to that average, the stock is priced at a very slight discount relative to Wall Street’s analysts, currently trading at $53.52.

Share repurchase programs can be a great way to increase the value of a company’s stock price.  Buybacks also give confidence to the shareholders because the company’s management is making a statement that the stock is undervalued relative to the current price or fundamentals and that a bright future is ahead.  Buybacks can provide a steady flow of demand for stock which is helpful during periods that lack strong catalysts.  As of now, the momentum for Home Depot and Cisco Systems seems to point to higher prices. We’ll look forward to seeing what the rest of 2019 brings.



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