In order to regain investor confidence,
Mead Johnson Nutrition Company
) declared that its board of directors have authorized a new
share repurchase program of up to $500 million of the company's
outstanding common stock.
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The repurchase will occur as per the company's convenience,
either from the open market, or through private negotiations.
According to the company, the buyback program is an opportunity
to return money to investors.
This new share buyback program will boost the repurchase
authorization of roughly $9.7 million available under the prior
share repurchase authorization of about $300 million announced
way back in Mar 2010.
We note that Mead Johnson has witnessed a drop in share prices
over the last three months along with weighty regulatory
headwinds in the key Chinese market. The stock has declined 7.86%
over the last 3 months. Thus, in our opinion, the company's new
share buyback program will not only leverage earnings power but
is likely to lend some upside to stock price. The stock is likely
to appear more valuable on the back of the recent news.
Mead Johnson got into hot water in July this year with the
antitrust review of resale prices commenced by the Bureau of
Price Supervision and Anti-Monopoly of China's National
Development and Reform Commission (NDRC). The company and its
competitors were accused of breaching anti-monopoly laws.
As a reaction to the probe, Mead Johnson, on Jul 16, declared a
7%-15% price cut in the country for its leading products.
Following the resolution of the antitrust review on Aug 6, the
company slashed its guidance for reported EPS for the ongoing
Following the hitch, Mead Johnson is working to regain investors'
faith. With cash and cash equivalents of over $1 billion (as of
Jun 30, 2013), the new buyback program is seen as an attempt to
increase shareholder value. Per management, the announcement
reflects Mead Johnson's confidence in its fundamentals.
Currently, the stock carries a Zacks Rank #3 (Hold). While we
have a neutral stance on Mead Johnson, other medical stocks like
Boston Scientific Corporation
) are worth considering. Alere carries a Zacks Rank #1 (Strong
Buy) whereas the other two are Zacks Rank #2 (Buy) stocks.