Morgan Stanley Updates CAH Model To Incorporate Acquisitions

Morgan Stanley has updated its model to incorporate Cardinal Health, Inc.'s CAH Kinray and Yong Yu acquisitions. “For FY11, we now forecast non-GAAP EPS of $2.52 (from $2.50) and cash EPS of $2.58,vs. consensus' $2.51 and management's guidance range of $2.38-2.48, which excludes strategic transactions,” Morgan Stanley writes. “In our updated model, we assume Kinray will contribute $1.75 bn in revenues in 2HFY11, drive incremental distribution margin expansion of ~6 bps associated with higher generic compliance and the new exposure to independent retail customer base, and ~$0.02 in earnings benefit.” Morgan Stanley said that for FY12, it is forecasting non-GAAP EPS of $2.99 (up from $2.86), ahead of consensus' $2.85, and cash EPS of $3.11. “Our new target of $45 is based on a 13.5x P/E multiple, applied to our CY12 EPS estimate of $3.32,” Morgan Stanley adds. Cardinal Health closed Tuesday at $38.58.