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WR Hambrecht Hikes dj Orthopedics to Buy

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.

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