Boon

What Is a Boon?

In general, a boon is something that leads to a beneficial outcome. In the financial markets, a boon is a positive development that is expected to benefit investors, but which may be short-lived. The term is used colloquially by investors and market commentators, and has a similar meaning as the expression “tailwind.”

Examples of potential boons include the upgrading of a company’s credit rating, the announcement of a dividend increase, or the acceptance by regulators of a desired merger or acquisition.

Understanding Boons

Boons are current or anticipated events that are expected to benefit investors. The term originates in Old Norse and Middle English and is associated with the granting of favors or requests. In this sense, the term can be interpreted as a kind of “gift” given by the market to investors.

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

For example, in referring to the market, a journalist might speculate that “the planned interest rate cut will be a boon to bondholders,” implying that the lower rates will cause bond prices to rise. In the case of stocks, an analyst might predict that “the synergies from XYZ’s planned merger with ABC are sure to be a boon for the company’s shareholders.”

"Boon" vs. "Tailwind"

The terms “boon” and “tailwind” have similar meanings, as used by market commentators. However, the former term is much older than the latter, which is understandable considering that “tailwind” is an allusion to planes, which are a relatively more recent invention. Boon, on the other hand, comes from the middle English word for a favor or request.

Real World Example of a Boon

One common example of a boon is the announcement of a stock buyback program, also known as a share repurchase program. This occurs when a company buys back its own shares in the open market, effectively investing in itself. Stock buybacks cause the total number of shares outstanding to fall, which necessarily means that all measures of per-share financial performance must rise.

For example, suppose 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 believe that your company’s shares are undervalued by the market, and wish to deliver more value to shareholders. Therefore, you decide to initiate a share repurchase program and buy back 25% of your outstanding stock.

By the time you have completed the program, you have reduced your shares outstanding to 75 million and have generated another $50 million in net income. Therefore, you have successfully increased your EPS by ~33%, to ~$0.67 per share. Seeing this improvement, market commentators describe your share repurchase as having been a boon to your company’s shareholders.