UPDATE: Credit Suisse Upgrades Medtronic to Outperform, Raises PT Following COV Acquisition

In a report published Tuesday, Credit Suisse analyst Bruce Nudell upgraded the rating on Medtronic MDT from Neutral to Outperform, and raised the price target from $66.00 to $70.00. In the report, Credit Suisse noted, “We are upgrading MDT to Outperform (from Neutral) following the planned COV acquisition announced on 6/15. We are leaving our MDT estimates unchanged pending further review of the transaction, but now believe the earnings accretion likely through the acquisition is not fairly reflected in MDT's share price. Excluding amortization our estimates imply year 1 / 3 EPS accretion of $0.46 (10%) / $0.88 (17%) assuming $250M/$750M in cost synergies & zero sales synergies. Also, we assume an 18% tax rate in FY16 dropping to 16.5% by FY18. In terms of financing, we assume MDT shares finance $25.4B of the deal with the rest from cash ($11.5B) & debt ($6.0B) paying 4% interest. Applying a 14X P/E multiple to $0.88 in FY18 EPS accretion & discounting back 3 years at 7.5% implies ~$10 in share price upside. We're raising our DCF-based price target to $70 from $66 based on a slightly higher assumed terminal growth rate.” Medtronic closed on Monday at $60.03.