(By Balachander) Covidien Plc (NYSE: COV) shares were initiated with a "buy" rating and price target of $66 by Brean Capital LLC.
The company is a premium name within medtech, consistently delivering solid mid-single digit growth (3 percent -5 percent) top-line organic growth and double-digit bottom line growth, the brokerage said.
Brean Capital said Covidien's product mix is heavily weighted toward lower ASP (under $500), but non-commoditized high efficacy to dollar products—that continue to thrive, even in a difficult hospital environment.
In addition, the company's growth is also driven by dominant market positions, emerging market expansion and a disciplined portfolio approach with an excellent track record in buying AND selling, the brokerage said.
Brean Capital estimates COV will generate over $2 billion in free cash flow in F2013 (7 percent FCF yield) and return half to shareholders.
"At the end of the 3Q (July 2013), COV plans a tax free spin of this business, which will create some dilution from an increase in infrastructure cost and a temporary unwinding of tax infrastructures, but we see increased value in separating the business," the brokerage wrote.
Brean Capital wrote that risk to its price target includes risk of a dilutive acquisition, legal and regulatory risk, and increased pricing and volume pressure. The company is only partially hedged and has an increasing international footprint, making it susceptible to FX volatility.
Shares of the Dublin-based company, which has been trading in the 52-week range of $41.69 to $60.81, shed 0.28 percent to trade at $56.59 on Tuesday.