Goldman Sachs Rebalances Debt Issuers Basket as S&P 500 Companies Boost Cash Spending
Goldman Sachs has recently updated its basket of debt issuers, indicating a shift in corporate financing strategies. In a report, analyst David J. Kostin notes that higher interest rates are expected to dampen large debt issuances, but companies have been rebuilding their cash balances.
S&P 500 Cash Spending
Analysts at Goldman Sachs anticipate a 9% increase in total cash spending by S&P 500 companies this year, reaching $3.7 trillion. This spending is primarily driven by cash mergers and acquisitions (M&A) and stock buybacks. Despite higher interest rates, which could make it more expensive for companies to borrow, S&P 500 companies have increased their cash balances by 7% year-over-year in the past 12 months.
EPS Growth Forecast
Analysts forecast an 8% growth in S&P 500 earnings per share (EPS) in 2024 and a 6% growth in the following year. This increase in earnings will provide companies with additional cash to spend on capital projects and other investments.
Goldman’s Debt Issuers Basket Rebalancing
Goldman Sachs has rebalanced its debt issuers basket, reflecting the changing financing environment. The new basket includes companies from various sectors, including communication services, consumer discretionary, consumer staples, energy, healthcare, industrials, information technology, materials, and utilities.
This rebalancing demonstrates Goldman’s assessment of the debt issuance risk and return profiles of different companies. The net debt-to-EBITDA ratio, net issuance or paydown, and percentage of enterprise value are key metrics used in evaluating these profiles.
Conclusion
Goldman Sachs’ rebalancing of its debt issuers basket and its forecast for increased cash spending by S&P 500 companies provide insights into the evolving corporate financing landscape. Companies are seeking to balance their need for capital with the current interest rate environment. The availability of cash will continue to play a significant role in shaping corporate investment and growth strategies.
