Wal-Mart Stores Inc., the world’s top retailer, Wednesday said its board of directors authorized a $10 billion stock repurchase plan, replacing a $7 billion share buyback program.
The increased share repurchase allowance comes a day after Standard & Poor’s said it would change the way it calculates its widely followed S&P 500 index, leading to lower weightings of heavyweight companies as Wal-Mart and Microsoft Corp. that have large blocks of closely held stock.
According to Citigroup Smith Barney analyst Deborah Weinswig, Wal-Mart is likely to take the biggest hit from the rebalancing of the S&P 500 index to a free-float methodology over the next 12 months.
Weinswig said in a research note ahead of the Wal-Mart announcement an increased share repurchase program could be a means to address potential volatility in the stock.
Indeed, Wal-Mart, based in Bentonville, Arkansas, said in its statement that the new buyback contemplated possible repurchases of its shares that may become available for purchase as a result of the S&P index adjustment.
Wal-Mart’s weighting in the S&P is set to fall to 1.32 percent from 2.11 percent, causing index fund managers to sell shares as they adjust their holdings to reflect the new weightings.
The new methodology will assign weightings to companies based on the value of a company’s stock that is actually available to be traded, rather than counting all outstanding shares.
The index change is expected to result in a total sale of about 159 million Wal-Mart shares, representing $8.4 billion of turnover, according to Weinswig.