International health care products major, Covidien plc announced a share repurchase program of $3 billion to leverage investor confidence. The company already has about 425 million shares available for repurchase under its $2 billion share repurchase program announced in 2011.
In 2012, Covidien returned more than $1.75 billion to its shareholders via share buybacks and dividends. This represented almost 100% of its free cash flow, which is well above the company’s target of returning at least 50% of its free cash flow to investors. In the first quarter of fiscal 2013, the company had repurchased roughly 4.4 million ordinary shares.
The share repurchase program reflects Covidien’s commitment to deliver incremental returns to investors leveraging a solid free cash flow and strong earnings. Covidien has a strong liquidity position to support the plan. The company ended the first quarter of fiscal 2013 with cash and cash equivalents of $1,399 million. It also generated $120 million in cash from operations in the quarter.
Covidien also declared its regular quarterly cash dividend of 26 cents per share, payable on May 3, 2013, to shareholders of record as on Apr 4, 2013. Earlier in Sep 2012, the company had raised its quarterly dividend by 16% to 26 cents from 22.5 cents.
Covidien’s peer, Patterson Companies (PDCO - Analyst Report) , a Minnesota-based distributor of dental, veterinarian and rehabilitation medical supplies, also announced a share repurchase program as well as a dividend hike in an effort to leverage investor return.
Covidien is well positioned to achieve its long-term revenues and earnings growth targets based on its attractive fundamentals, strategic R&D investment, new product cycle and expansion into emerging markets. It currently carries a Zacks Rank #2 (Buy).
However, Covidien faces stiff competition and remains exposed to pricing and utilization headwinds, along with acquisition risks. We also remain concerned about the tepid U.S. health services industry and the soft European economy. In addition, foreign exchange translation is expected to dampen growth.
Other companies like CareFusion and Hanger , carrying a Zacks Rank #2 (Buy), are expected to do well in the medical industry.