The firm's analysts estimate that share buybacks
will reach $36.2 billion next year. That's a slight decline from $37.4
billion in 2011, but well above $20.7 billion in share repurchases seen
in 2008.
While capital spending is expected to increase, it will be nowhere near peak levels of 2006-2007.
Beyond share buybacks and dividends, retailers
are also expected to focus on international growth, e-commerce,
marketing programs (including loyalty programs), and remodels.
Offering
automotive parts retailer AutoZone as an example, the report
underscores that buybacks work best when combined with strong company
fundamentals — supporting stock through lower earnings years and amplify
earnings improvement in the better years.
For 2012, the report calls Home Depot and Lowe's the most interesting names in the retail space.
"While
these names do not have the highest yields in the segment, buybacks can
support earnings today, while the housing market remains challenging,"
says the report. "In the long term, if one believes in a housing
recovery and that these companies can deliver upside to margins, the
higher earnings combined with the years of buybacks should lead to much
stronger [earnings per share] growth and strong stock performance."
Credit Suisse analysts also expect to see significant returns of capital for shareholders from department stores.
Macy's could buy back about $1 billion of stock in 2012 and double its annual dividend to $0.80 from $0.40, says the report.
Kohl's
is also seen increasing its dividend, which was initiated for the first
time ever in 2011, and buying back about $800 million in stock next
year.
In addition, Dillard's and Saks "both
will have capacity to return meaningful amounts of capital in the form
of share repurchases and dividends in the coming year," says the report.
Strong outlooks and the financial flexibility put CVS
and Kroger in a good position to continue returning cash to
stockholders for the foreseeable future. "We estimate they should buy
back 7% to 8% of their current market capitalization in 2012," says the
report.
Just this week, CVS announced a 30% increase in its quarterly dividend.
Equipment suppliers are viewed as most likely to actively repurchase shares in the near-term, with International Game Technology taking the lead. According to the report, every $50 million of stock repurchased could add $0.01 to EPS for the company.
"Earlier
this year, the company announced a new $500 million share repurchase
program, and with $1.3 billion in free cash flow through fiscal 2013,
management appears eager to return cash to shareholders, particularly as
fundamentals are improving," says the report.
However, retailers with high cash flow yields but weak fundamentals may not benefit from buybacks. Among them, Best Buy, GameStop, Sears, Staples, and Bon-Ton Stores.
"While
buy backs may support EPS in the near term, the stocks may not be
rewarded if the companies cannot demonstrate net income growth," says
the report.
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