Bear Mountain Bull

As I read yet another article on a stock buyback announcement and the resultant pop in the company’s stock — today’s being CSCO — I was reminded of one of Kevin Depew’s Five Things from the other day:

Going over the Macy’s (M) call transcript yesterday the news was, as one would expect, rather grim. But what is grim is less the anticipated slowing retail sales environment, but other comments related to credit markets, corporate buybacks and the ability to generate EPS growth without the buybacks.

• The following comments during the call on Macy’s share buyback program from Karen Hoguet, Macy’s CFO, are telling:
  

  “Given the current condition in the credit markets, we are carefully evaluating our options with respect to the timing of completing our remaining $1 billion authorization. As a result, some or most of that $1 billion could end up being deferred into next year. While we are optimistic about our prospects, and we believe the stock today represents a great value, we do need to balance this with the benefits of preserving access to all financial markets during these volatile times in the credit market.”

• Remember, there is a specific reason companies repurchase shares of their own stock. And this is another untold consequence of the credit market problems.
• Without corporate buybacks it is impossible for many companies to get EPS growth.
• That is where we now are in this economy.
• Karen Hoguet again, in response to pushing back the billion dollar share repurchase authorization:
  

  “The truth is that’s why we give a range of estimates. If we don’t buy back the billion dollars, obviously the operations are going to have to do better to get to the same earnings. But that is part of the reason we give a range. You know, it’s not as precise as you all think to estimate earnings going forward. So we do the best that we can as we provide guidance.”

• Yes, if companies such as Macy’s can’t buy back a billion dollars in their own stock, they are going to have to do better operationally to get the same earnings.