5 Charts From Goldman Sachs That Support Carl Icahn's Buyback-Danger Thesis

• The historically-low interest rate environment has stimulated massive share buyback programs.
• Buyback levels have now reached their highest point since 2007.
• Larger companies that announce buyback authorizations typically significantly outperform the S&P 500 within a year of the announcement.

Carl Icahn’s new “Danger Ahead” video has Wall Street buzzing this week as investors try to determine exactly how much weight Icahn’s words hold. In the video, one of Icahn’s major points is that low interest rates have artificially stimulated a bubble in high-yield bonds and M&A.

Another side-effect of low rates is a massive increase in corporate buybacks. A new report by the Goldman Sachs Investment Banking Division highlights just how robust the buyback environment has become.

Here are five telling charts from the report.


The first chart shows that projected 2015 repurchase activity has reached its highest level since 2007. Goldman is predicting $692 billion in executed buybacks by year’s end.


This chart shows the companies that led the buyback charge in Q2. Apple Inc AAPL, Express Scripts Holding Co ESRX and Qualcomm Inc QCOM were the top three names, and Goldman notes that the top 20 companies accounted for 40 percent of total buybacks in the quarter.


The next chart shows which companies are loaded up to make the most repurchases in Q4. Apple, General Electric Co GE and The Walt Disney Co DIS top the list.


Are all these buybacks actually generating returns for investors? According to this chart, the buyback strategy seems to have worked since the beginning of 2012.


These last series of charts show that investors need to be patient following the announcement of a buyback authorization. There is typically very little market outperformance in the month following a buyback announcement. However, the outperformance among companies with market caps greater than $1 billion is significant one year down the road.

Disclosure: the author holds no position in the stocks mentioned.