Deutsche Bank considers Quest Diagnostics DGX move to accelerate its buyback as a further sign of confidence. While it still believes better execution and more concrete signs of
revenue growth will be the most important factors that could alter DB's fundamental Hold opinion on DGX shares, it is taking its estimates and price target up to reflect the size/timing of the buyback. Deutsche Bank also made a few other minor adjustments to its model, which takes its 2011 EPS up $0.23 to $4.54.
GlaxoSmithKline exited its legacy 30.8M share DGX investment in a two-fold transaction involving an overnight offering of 15.4M shares; and a privately negotiated direct purchase by DGX of the remaining 15.4M shares from GSK. This two-fold transaction allowed GSK to fully exit its non- strategic investment holding of 18% of DGX shares in an orderly fashion, netting an estimated $1.7B in value for GSK.
As a result of the buyback transaction, DGX raised its 2011 EPS guidance range by $0.15 to $4.25-$4.45, and DGX is still left with ~$150M of its $1B buyback authorization in place. Deutsche Bank's prior model assumed $575M of buyback in 2011 ratably throughout the CY, but after taking into account the timing and increased size of the buyback it is raising 2011 EPS to $4.54 and 2012 EPS to $4.92.
DB has a $64 PT and Hold rating on DGX
DGX is trading at $57.37
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