Morgan Stanley Sees Underappreciated Upside Drivers for Zimmer Holdings

In a report published Monday, Morgan Stanley analyst David R. Lewis reiterated an Equal-Weight rating on

. In the report, Morgan Stanley noted, “We see three underappreciated drivers of additional deal accretion. While we model pro forma EPS at $8.84 in 2016 in our base case, there is a path to exceeding $9.30 through less conservative assumptions for interest, debt repayment, and synergies. A 4.0% interest rate (vs. MS 4.5%) could drive $0.18, doubling debt repayment could provide $0.08, and each percent saved from lowering the company's combined cost basis (COGS, SG&A, and R&D) is worth $0.20-0.25 to 2016 EPS. We are most conservative on COGS, where we only model $40mn of savings in 2017 or 1% of total costs. We see an improving risk reward and remain comfortable that remedies exist for any FTC action.” Zimmer Holdings closed on Friday at $103.79.