Why Share Buybacks Are Seen as a Defense

Wolfe Research suggests that companies with active share buyback programs can serve as defenses during uncertain economic times. These buybacks can potentially boost stock prices and return money to shareholders. This strategy gains attention as geopolitical tensions and rising oil prices create broader market instability. However, looking closer at companies like Lowe's and ADP shows a more complex situation, where buybacks face challenges from the companies' own operational issues and industry shifts.

How Buybacks Can Support Stock Prices

Wolfe Research notes that companies with consistent share buybacks, like Lowe's (LOW) and ADP, can offer investors a cushion against market turbulence. By reducing the number of outstanding shares, buyback programs can theoretically increase earnings per share (EPS) and signal management's confidence. Lowe's currently trades around $235 (market cap ~$132 billion, P/E ~19.8x), while ADP trades near $204 (market cap ~$82 billion, P/E ~19.6x). These buyback actions are closely watched. Although ADP's stock is down roughly 37% from its June 2025 peak, and Lowe's shares recently dipped despite beating Q4 2025 earnings expectations, ongoing buyback authorizations show intent to support share prices.

Lowe's and ADP: A Closer Look

Lowe's, a home improvement retailer with $86.3 billion in fiscal 2025 sales, faces intense competition from larger rivals like Home Depot, which reported $151 billion in revenue. Despite positive analyst sentiment, a consensus 'Buy' rating, and a median price target of $289, Lowe's saw margin compression in Q4 2025 due to acquisition costs. Its Q4 2025 comparable sales grew 1.3%, helped by its Pro segment and online services, but the retail sector faces pressure from slowing construction, even with recent retail sales gains. Lowe's stock also experienced a dip during similar market concerns about a year ago.

ADP operates in the business services sector, expected to reach $18.8 trillion by 2026, driven by digital transformation and AI. While ADP handles payroll for a large part of the U.S. workforce and boasts a 51-year dividend streak, Workday leads its market share in HCM solutions. ADP's P/E ratio is similar to Lowe's, around 19.6x. Analyst sentiment for ADP is mixed, holding a 'Hold' consensus with some recent price target changes. ADP's stock has fallen significantly from its 2025 peak, with a trailing 12-month P/E of about 19.5x. The business services sector is growing, but traditional areas face margin pressure and more competition. Unlike Lowe's, analysts are more cautious on ADP.

Underlying Risks and Challenges

While buybacks can theoretically boost stock prices, their effectiveness depends on the company's underlying health and how capital is used. For Lowe's, ongoing margin compression and integration costs from acquisitions like Foundation Building Materials and Artisan Design Group question long-term profitability, despite strong sales growth. Even after beating Q4 2025 expectations, the stock fell due to economic concerns and pressures, and its long-term debt increased.

For ADP, despite its 'Dividend King' status and essential role, competition is intense, with Workday leading in HCM solutions. Recent downgrades and mixed analyst ratings point to concerns about future growth or valuation, especially since the stock is down significantly from its 2025 peak. ADP's modest 5-6% revenue growth target for fiscal 2026 might not justify current valuations if market conditions worsen or competition heats up. Relying on buybacks to hide slow growth or margin erosion in business services could be a hidden risk, particularly as traditional segments face pressure.

Looking Ahead

Lowe's projects fiscal 2026 sales between $92.0–$94.0 billion, with flat to 2% comparable sales growth and an adjusted operating margin of 11.6–11.8%. This guidance signals caution for home improvement, facing rising interest rates and a cooling housing market, despite a recent retail sales rebound. ADP forecasts 5-6% revenue growth for fiscal 2026 and aims for adjusted EBIT margin expansion. The business services sector is expected to grow 8% annually through 2026, driven by digital transformation, but competition and talent shortages are key factors. Both companies' ability to continue buyback programs will rely on sustained strong free cash flow amid these evolving economic conditions.