Repatriated Cash to Drive Stock Buybacks 30% Higher to $780B in 2017 - Goldman Sachs

November 21, 2016 12:27 PM EST
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Strategists including David Kostin at Goldman Sachs expect S&P 500 companies to spend $2.6 trillion in cash in 2017, with 52% going to growth, and 48% in returns to shareholders via dividends and stock buybacks. They note cash balances currently stand at historical highs, totaling $1.6 trillion (ex-Financials) or 12% of assets compared with a long-term average of 7%.

Kostin expects share buybacks will rise by 30% to $780 billion in 2017, driven by corporate tax reform, including repatriation. They estimate $150 billion or 20% of total buybacks will be driven by repatriated overseas cash. Excluding the repatriation boost, they estimates buybacks will rise by 5%. The forecast dividend growth of 6%.

Companies expecting robust buybacks: Apple Inc. (NASDAQ: AAPL), Dow Chemical (NYSE: DOW), Bristol-Myers Squibb (NYSE: BMY)

They see Capex rising 6% to $710 billion as Energy capital spending stabilizes. After plunging 45% since 2014, energy accounts for 19% of S&P 500 capex. They forecast 1% growth in Energy capex next year. S&P 500 ex-Energy capex will rise by 7% in 2017. R&D spending will grow by 7% to $290 billion led by Information Technology and Health Care. Meanwhile, they expect cash spending on M&A will rise by 5% to $335 billion following a 20% plunge in 2016.

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