Comcast, J&J jump on the buyback bandwagon ahead of new taxes

By Eva Mathews

(Reuters) -Comcast Corp and Johnson & Johnson on Wednesday unveiled buybacks worth billions of dollars as they joined a rush of U.S. companies seeking to avoid a new tax on such repurchases.

The $430 billion Inflation Reduction Act imposes a 1% tax on buybacks and a minimum 15% tax on corporations from next year.

Comcast doubled its share buyback authorization to a record $20 billion after increasing it to $10 billion in January, while J&J announced a repurchase program of up to $5 billion.

Wireless carrier T-Mobile US Inc, seeds and pesticides company Corteva Inc, coffee chain Starbucks, and several smaller companies, have laid out plans to buy back shares.

While the new tax will encourage companies to pull forward buybacks and increase repurchases in the near term, the weakness in equities markets is also a major reason, said Art Hogan, chief market strategist at B. Riley.

"When valuations are low and markets are down, companies tend to buy back their shares. So it's a reflection of where markets are," Hogan said.

The benchmark S&P 500 index has declined nearly 18% this year as runaway inflation spurs super-sized rate hikes from the Federal Reserve.

When the S&P 500 posted its biggest quarterly loss in two years in the first three months of 2022, buybacks hit a record $281 billion, according to S&P analyst Howard Silverblatt.

Silverblatt estimates buybacks in the second quarter to be around $220 billion, breaching the $1 trillion mark on a 12-month basis.

The fourth quarter would see a significant uptick, as companies planning for 2023 repurchases would prepone their plans due to the new tax, he said.

Shares in Comcast and Johnson & Johnson rose 1.7% and 2%, respectively.

(Reporting by Eva Mathews in Bengaluru; Additional reporting by Tiyashi Datta;Editing by Vinay Dwivedi and Sriraj Kalluvila)