That said party like its 1999 as economic growth estimates for the current quarter have been increased to 3.6% as per the Atlanta Fed’s GDPNow model.
With the 2nd quarter earnings season on track to produce another consecutive decline in earnings and revenues what’s a CEO to do in order to maintain the illusion of prosperity and growth as reflected in the oh so important EPS or Earnings Per Share number? Using Motorola Solutions as an example, it should be noted that they are far from unique. You buy back shares, and lots of them using debt to do so if necessary. This neat trick will maintain and can actually increase the EPS number despite falling earnings as there is quite simply less shares to distribute earnings too. Since 2011 Motorola Solutions has bought back 11.5 billion of its stock and recently authorized the purchase of another 2 billion. Reducing the share count by more than half neatly covered up a decline in earnings of 987 million to just 613 million from 2011 to 2015. This helped propel the share price to a market beating result over the same period. Of the stock purchased about 6.1 billion came from earnings and other internal sources, the rest or 5.4 billion and counting was financed through debt and a reduction in cash on hand. While this may be an egregious example it is essentially the foundation of the market at present, oh and don’t forget the near all-time record margin levels. Because it’s always a “ahem” great time to buy.
This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.
You can catch me on the radio at noon each business day as well on California’s central coast. KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.
Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.