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St. Jude to Repurchase $1B Shares

Zacks Equity Research

In its concerted effort to increase shareholder’s value, medical devices major, St. Jude Medical Inc. (STJ) recently announced a share repurchase program to buyback up to $1 billion of its outstanding common stock. The repurchase will occur as per the company’s convenience, either from the open market, or through private negotiations or otherwise.

The company plans to fund the program with cash along with other available liquidity. St. Jude exited the third quarter of 2012 with cash and cash equivalents of $1,051 million, 9.5% higher than the previous year.

In order to uphold investor confidence, St. Jude repurchased 7.1 million of its common stock for $300 million in the third quarter. The company also made dividend payments of 23 cents in each of the last three quarters of 2012, representing a 10% increase over the same periods in 2011.

Earlier, in its third quarter results, St. Jude had authorized a share repurchase program of up to $300 million as a measure to offset dilution related to stock compensation programs in 2013. As of November 28, 2012, the company had roughly 308 million issued and outstanding common shares.

For the fourth quarter, the company expects adjusted earnings in the band of 86 cents–88 cents a share. For full-year 2012, St. Jude forecasts adjusted earnings in the range of $3.42–$3.44 per share from the earlier band of $3.40–$3.45. The share repurchase program will allow the company to further leverage earning power going forward.

Investors have accepted the news of the buyback program in a positive light, as the company’s shares increased 2.4% to $33.69 on November 29, 2012.

St. Jude, with a market cap of $10.38 billion, has maintained robust growth rate over the past decade. We believe that new product development and penetration into emerging markets will drive long-term growth for the company.

The company is aggressively realigning its operating segments in order to lower operating expenses as well as to hedge against the upcoming MedTech tax from 2013. Moreover, we are impressed by the company’s efforts to deliver incremental returns to investors leveraging its solid balance sheet, healthy free cash flow and earnings power.

While the company is battling pricing pressure and declining volumes in the domestic ICD market, it continues to have a substantial market share in the worldwide CRM market along with Boston Scientific (BSX) and Medtronic (MDT).

Our long-term ‘Neutral’ recommendation on St. Jude is in agreement with a short-term Zacks #3 Rank (Hold).

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