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In order to return wealth to its shareholders, the board of directors of Shutterfly, Inc. (SFLY - Analyst Report), a personalized products and service provider, authorized an increase of $100.0 million in its share repurchase program. The increase reflects the company’s confidence in its fundamentals and its strong liquidity position.

In Nov 2012, Shutterfly’s board had authorized the repurchase of shares worth $60.0 million of outstanding Shutterfly common stock. As of Dec 31, 2013, the company made share repurchases worth $32.2 million. The company targets share repurchases worth $100.0 million over the next five quarters.

Given the company’s strong balance sheet, we believe that the decision to make additional share repurchases is well justified. As of Dec 31, 2013, cash and cash equivalents were $499.0 million, up from $245.0 million as of Dec 31, 2012. Net cash provided by operating activities was $147.0 million, down 2.7% year over year.

The share buyback will help the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Meanwhile, this strategy to return wealth to shareholders would keep the stock attractive as it demonstrates the company’s growth potential and stable liquidity position.

This Zacks Rank #3 (Hold) company reported strong fourth quarter results last week, beating the Zacks Consensus Estimate for both top and bottom lines. However, it provided a weak outlook for 2014 and expects to incur a loss in 2014 compared to profits earned in 2013.

Some better-ranked stocks in the sector include YY Inc. (YY - Snapshot Report), Global Eagle Entertainment Inc. (ENT - Snapshot Report), Giant Interactive Group, Inc. . While YY Inc. carries  a Zacks Rank #1 (Strong Buy), Global Eagle Entertainment and Giant Interactive Group hold a Zacks Rank #2 (Buy).

 

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