WR Hambrecht upgraded dj Orthopedics (DJO
) to buy, after the medical device company said Monday that it plans to buy the orthopedic products maker Aircast for about $290 million.
Analyst David Turkaly says Aircast will likely be 15 cents to 30 cents accretive to earnings per share (EPS) in 2007, which now could be $2.00. He set a $40 price target (20 times the $2.00 2007 estimate.) He cites potential synergies from the deal in manufacturing, distribution, and taxes (he notes that Aircast is 30% international.) He says the deal will be funded by $290 million of new senior debt provided to dj Orthopedics via the Wachovia-led refinancing pact. While this is a large debt load, he thinks dj Orthopedics has been levered in the past and has been operating better recently, giving him comfort that this is manageable.