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In order to regain investor confidence, Mead Johnson Nutrition Company (MJN - Analyst Report) 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.

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 year.

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 Alere Inc. (ALR - Snapshot Report), Boston Scientific Corporation (BSX - Analyst Report) and Exactech Inc. (EXAC - Snapshot Report) are worth considering. Alere carries a Zacks Rank #1 (Strong Buy) whereas the other two are Zacks Rank #2 (Buy) stocks.

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