UPDATE: Morgan Stanley Downgrades CareFusion to Equal-Weight on Valuation, Margin Visibility

Morgan Stanley reduced its rating on CareFusion (NYSE: CFN) from Overweight to Equal-weight.

Morgan Stanley noted, "Operating margin expansion is likely to be muted. As CEO Kieran Gallahue has become more familiar with the business, we believe P&L focus has shifted to growth over profitability. CareFusion will continue to realize operating leverage, but the pace will likely slow as investments in pipeline and selling structure offset efficiencies. We still expect FY14 operating margins of 20.3%, representing 80 bps of improvement since FY12. However, one year ago, we expected margins to increase over 200 bps in this period. We expect the reinvestment debate to become more prominent as SG&A increases sharply in coming quarters."

CareFusion closed at $29.28 on Wednesday.

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