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Wall Street Comfortable With Covidien Buy; Some See Move By Johnson & Johnson


Wall Street appeared comfortable with the latest big healthcare merger, this one the acquisition of Covidien (NYSE: COV) by Medtronic (NYSE: MDT), a deal which turns eyes to Johnson & Johnson (NYSE: JNJ).

"We expect many investors will expect J&J to buy something in the cardiac space," BTIG analyst Sean Lavin said in a research note.

With its latest acquisition, Medtronic becomes the largest player in the cardiac market and second-largest in surgery, Lavin said. Johnson & Johnson remains the biggest in surgery, but with almost nothing in the cardiac segment.

The thinking goes that Johnson & Johnson may acquire either a large cardiac player or a number of smaller ones.

Among shares trading up on the news as predicted by Lavin Monday were St. Jude Medical (NYSE: STJ) up 1.49 percent to $66.06 a share, Boston Scientific (BSX) $12.93, up 1.02 percent, and Abiomed (NASDAQ: ABMD), $23.15, up 0.87 percent.

"It's tough to say which way Intuitive Surgical will go, since this removes Covidien as a potential buyer," Lavin said earlier Monday.

In late afternoon trading, Intuitive Surgical was up 3.33 percent to $410.05 a share.

As for the Medtronic Covidien deal itself, Lavin said the 30 percent premium over Covidien's recent closing price is "highly likely to be accepted" and no further bidders seem likely to emerge.

The deal offers better global presence to Medtronic and better product launch experience to Covidien, Benchmark analyst Jan Wald said in a research note calling the deal "attractive."

Wald cut the rating on Covidien to Hold from Buy, citing the stock's reaction to the merger news.

Similarly, CRT analyst Shagun Singh Chadha called the deal "sufficiently attractive" and boosted a price target for Covidien to $93.22, from $82. Chadha cut the company's rating to Fair Value, from Buy.

New York law firm Levi & Korsinsky threatened a class action suit and said it is investigating whether Covidien breached fiduciary duties "by failing to adequately shop the Company before agreeing to enter into this transaction, and whether Medtronic is underpaying."

Latest Ratings for COV

Nov 2014JefferiesMaintainsBuy
Oct 2014Morgan StanleyDowngradesOverweightEqual-Weight
Jul 2014JefferiesMaintainsBuy

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