Morgan Stanley maintained its Equal-weight rating on Medtronic MDT as the company acquires Kanghui Holdings KH.
Morgan Stanley commented, "Despite a low near-term ROIC, we think the strategy of purchasing Kanghui is viable as Medtronic is paying up to own its destiny in China, which puts the Weigao JV in question. … Kanghui has 20% of its sales outside of China and provides Medtronic with access to the value segment in emerging/developed markets. Short term, this likely has a nominal impact on incumbent orthopedics players, but longer-term the acquisition could cause increased competition and pricing pressure or strategic shifts at multiple companies including Stryker, Zimmer, Johnson & Johnson, and Biomet."
Medtronic closed at $43.48 on Thursday.
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