Boon

What Is a Boon?

By and large, a boon is something that prompts a beneficial outcome. In the financial markets, a boon is a positive development that is expected to benefit investors, yet which might be fleeting. The term is utilized casually by investors and market pundits, and has a comparable importance as the maxim "tailwind."

Instances of potential boons incorporate the redesigning of a company's credit rating, the announcement of a dividend increase, or the acceptance by regulators of an ideal merger or acquisition.

Figuring out Boons

Boons are current or anticipated occasions that are expected to benefit investors. The term begins in Old Norse and Middle English and is associated with the allowing of favors or requests. In this sense, the term can be deciphered as a sort of "gift" given by the market to investors.

The term can be utilized to depict the good fortune of individual securities, or the market as a whole.

For instance, in alluding to the market, a writer could estimate that "the arranged interest rate cut will be a boon to bondholders," suggesting that the lower rates will make bond prices rise. On account of stocks, an analyst could foresee that "the synergies from XYZ's arranged merger with ABC are certain to be a boon for the company's shareholders."

"Boon" versus "Tailwind"

The terms "boon" and "tailwind" have comparable implications, as utilized by market reporters. In any case, the former term is a lot more seasoned than the last option, which is reasonable thinking about that "tailwind" is a suggestion to planes, which are a somewhat later creation. Boon, then again, comes from the middle English word for some help or request.

Real World Example of a Boon

One common illustration of a boon is the announcement of a stock buyback program, otherwise called a share repurchase program. This happens when a company buys back its own shares in the open market, successfully investing in itself. Stock buybacks cause the total number of shares outstanding to fall, which essentially means that all measures of per-share financial performance must rise.

For instance, assume you are the Chief Executive Officer (CEO) of a publicly traded company with 100 million shares outstanding. Your company has net income of $50 million per year, meaning your earnings per share (EPS) is $0.50 per share.

You accept that your company's shares are undervalued by the market, and wish to deliver more value to shareholders. Consequently, you choose to start a share repurchase program and buy back 25% of your outstanding stock.

When you have completed the program, you have decreased your shares outstanding to 75 million and have generated one more $50 million in net income. Accordingly, you have effectively increased your EPS by ~33%, to ~$0.67 per share. Seeing this improvement, market observers portray your share repurchase as having been a boon to your company's shareholders.

Features

• Instances of possible boons for investors incorporate new product endorsements, mergers, and dividends.
• A boon alludes to a situation that is expected to benefit a few partners, for example, investors during a bull market run.
• The word boon is frequently utilized by market pundits, and has a comparative importance as "tailwind."