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UPDATE: Morgan Stanley Reiterates On Covidien plc On Expected Earnings Growth Acceleration

Dwight Einhorn

In a report published Wednesday, Morgan Stanley analyst David R. Lewis reiterated an Overweight rating on Covidien plc (NYSE: COV), and raised the price target from $75.00 to $79.00.

In the report, Morgan Stanley noted, “Several dynamics increase our confidence that the upcoming EPS inflection is sustainable. Heading into F2H14 and FY15, the device tax has anniversaried, investments in emerging markets should come down, FX pressures should fade and restructuring savings should build. Our 10% EPS growth is driven by 4.5% organic sales growth, 30 bps of operating leverage (120 bps of EPS growth), and share repurchases (300 bps of EPS growth).

"While repurchases may come in below our model, there is upside to margins as scale in EM and restructuring progress could combine for 60 bps of leverage, and tax liability settlements could lower the tax rate. We are less bullish on sales acceleration and model 4-4.5% organic growth through FY17.”

Covidien plc closed on Tuesday at $71.83.

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