We are correcting a blog post from earlier today, and clarify that Medtronic's (MDT) planned buyout of Kyphon (KYPH) has resulted in a downgrade of Kyphon shares - from Buy to Hold - by Zacks senior medical devices and supplies industry analyst Gregory Aurand, CFA. The following is from that report:
Kyphon reported a second quarter with better-than-expected top-line on in-line EPS [earnings per share], excluding charges, with slightly lower-than-expected gross margin. We are only modestly revising our estimates for the increased top-line. More importantly, Medtronic and Kyphon announced that Medtronic would acquire Kyphon for $71 per share in cash, with the deal to close in Q108. There is a $95 million breakup fee.
However, although unlikely, we would not rule out another bid given the long time to deal closing. Our price target moves to $71.00 and our rating on Kyphon moves to Hold from Buy.
The two companies' product lines and geographic presence are highly complementary. While both companies have expertise in minimally invasive, highly effective treatments, Medtronic's spinal surgery focus has been on providing treatment options for younger patients who are suffering from scoliosis and degenerative disc disease in the cervical and lumbar spine.
At roughly a 1.4x 2008 P/E/G [price-to-earnings growth], a 10% premium to the group 2008 P/E/G of 1.3x, our valuation target moves to $60.00, or 55x our 2007 EPS estimate of $1.09 and 38x our 2008 EPS estimate of $1.56. Given the merger, and the strong likelihood of the deal closing, our price target moves to $71.00 and our rating moves to Hold.
Read the full analyst report on KYPH
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