Volcano said yesterday after the market’s close that its board authorized the share repurchasing program, including an accelerated plan worth $100 million with J.P. Morgan Securities for some 3.6 million shares. The remaining $100 million repurchase is slated to be made in the open market, Volcano said.
The move buoyed VOLC share prices to $23.75 apiece as of about 10:20 a.m. today, up 5.6%. The buyback could ultimately see the San Diego-based medical device company acquire about 15% of its own shares, according to Leerink Swann analyst Danielle Antalffy.
"The board of directors believes this repurchase authorization and accelerated share repurchase program underscores our confidence in Volcano’s prospects and long-term outlook," president & CEO Scott Huennekens said in prepared remarks. "Volcano’s strong balance sheet provides us with the financial flexibility to return capital to shareholders at an accelerated rate while continuing to invest in our business and maintaining our ability to capitalize on external growth opportunities. We will continue to be disciplined with respect to the allocation of capital and we are confident that we are taking the right steps to grow the company and create value for all Volcano shareholders."
The move could also help quell a proxy battle with activist investor Glenn Welling and his fund, Engaged Capital. Welling’s firm last month purchased some 5.1% shares of VOLC stock and demanded changes including a $200 million share repurchase.
Volcano reported losses of $8.5 million, or -15¢ per share, on sales of $95.8 million for the 3 months ended Sept. 30, compared with profits of $2.0 million, or 4¢ per share, during Q3 2012, for top-line growth of 2.3%. Adjusted losses per share were 8¢.
Antalffy wrote in a note to investors this morning that the stock buyback could boost Volcano’s EPS by 20%-25% during 2015 and 2016, "depending on the speed of the repurchase and the price of VOLC shares, with a more modest 10%-15% benefit in 2014."
"While we were already expecting a sizeable repurchase – we estimated $150M – we still view the repurchase positively as it: (1) is a highly accretive use of the proceeds from the $350M in convertible debt raised last year – which was earmarked for M&A; (2) makes a larger transformative – and potentially dilutive – acquisition less likely; (3) provides investors with some comfort of share support heading into year-end; and (4) could potentially be the start of a more thoughtful capital deployment strategy, especially now that a committed activist investor is involved. Given the valuation – which is admittedly cheap – and the promise of a return to accelerating sales growth in 2015E on new product launches, we remain [outperform]-rated,” Antalffy wrote, maintaining Leerink’s $24 price target on the stock.