Morgan Keegan Reports Covidien Might Be Close to Divestiture of its Pharmaceutical Assets

Morgan Keegan is out with its report on Covidien (NYSE: COV) noting speculation by investors that Covidien might sell off its pharmaceutical assets.

In a note to clients, Morgan Keegan writes, "Based on our analysis, we believe that Covidien should exit the pharmaceutical business over time as it could improve margins, likely reduce the volatility associated with generic pharmaceuticals, concentrate the business towards the higher growth and margin device business, and drive incremental opportunities to increase shareholder value through acquisitions or share repurchase. With the opportunity to unlock further shareholder value through a series of initiatives, we would purchase Covidien shares. There are no changes to our estimates, Outperform rating, and $50 price target."

COV closed Friday at $43.53.