Medical device major
St. Jude Medical
(
STJ
) is slated to announce its second quarter results before the
opening bell on Wednesday, July 18. The current Zacks Consensus
Estimate for the second quarter is 87 cents, representing estimated
year-over-year growth of 2.35%.
First Quarter Recap
St. Jude's first-quarter 2012 adjusted earnings per share of 86
cents beat the Zacks Consensus Estimate of 83 cents and surpassed
the year-ago earnings of 80 cents. In the quarter, reported profit
dropped 9% to $212 million (or 67 cents a share).
The Minnesota-based medical technology giant reported net
revenues of $1,395 million, up 1% year over year, beating the Zacks
Consensus Estimate of $1,383 million. Strong growth across the
company's smaller Atrial Fibrillation (AF) and Neuromodulation
segments were largely offset by the decline in the core Cardiac
Rhythm Management ("CRM") division.
Revenues from the soft CRM segment, St. Jude's mainstay, dropped
4% year over year to $735 million. Implantable Cardioverter
Defibrillator ("ICD") revenues dipped 3% while pacemaker sales
declined 4%, mainly due to the sluggish U.S. market.
On the positive side, Atrial Fibrillation revenues climbed 13%
on the back of a strong product pipeline and an upbeat market.
Neuromodulation sales jumped 12% attributable to increased market
penetration of its products. The Cardiovascular franchise continued
its healthy growth streak with sales moving up 3%.
Estimate Revisions Trend
Agreement
There is a significant negative bias in estimate revisions for
both the June quarter and the full year. Out of the 18 analysts
covering the stock, 2 made a negative revision over the last 7 days
with none moving in the opposite direction. Over the last 30 days,
there were 4 downward revisions with no reverse movement.
A similar pattern was repeated for fiscal 2012 estimates with 2
downward movement over the past week, out of 20 analysts. However,
over the last 30 days, 7 analysts downgraded their estimates with
no upward drift.
Magnitude
While estimates for the second quarter remained unchanged (at 87
cents per share) over the past week and month, estimates for 2012
dropped by a penny to the current level of $3.46 over the last 30
days. The company continues to be adversely affected by the soft
CRM market and the weak U.S. ICD sales, which are expected to be a
drag on 2012 results.
The current Zacks Consensus Estimate for fiscal 2012 is $3.46
per share, representing estimated year-over-year growth of
5.43%.
With respect to earnings surprises, St. Jude has posted positive
surprises in the preceding four quarters. St. Jude has delivered an
average positive earnings surprise of 2.45% over the past four
quarters. Second quarter earnings are also expected to meet
expectations.
Our View
St. Jude is consistently producing revenue growth and positive
earnings surprises over the past several quarters. Despite the weak
global economy, the company had revised its earnings forecast for
fiscal 2012 to the range of $3.44 - $3.49 per share from the
earlier band of $3.43 - $3.48. We are impressed by its solid
fundamentals, healthy growth trajectory, strong product mix, robust
pipeline and cost management initiatives.
We remain impressed by St. Jude's ability to deliver consistent
top-line growth and believe that its June quarter results will be
supported by new products. A spate of new growth drivers (including
new products and emerging markets) is expected to offer
opportunities for accelerated sales growth over the next few
years.
During the quarter, St. Jude's Cardiovascular business achieved
two milestones. In May, the company received CE Mark approval for
its EnligHTN renal denervation system for treating patients with
hypertension. Physicians at St. Jude's cardiovascular unit believe
that this alternative form of treatment of resistant hypertension
represents a significant advancement in the field of medical
science.
In June 2012, the company announced U.S. Food and Drug
Administration (FDA) approval for its Amplatzer Vascular Plug 4
("AVP4") device in the U.S. With roughly 50,000 peripheral
embolization procedures performed every year, St. Jude's
Cardiovascular division is poised to considerably benefit from the
new product, which is the first of its kind in the medical vascular
products market.
Also worth mentioning in this context is the limited impact of
negative data on Durata on the company's performance during the
reported quarter. However, we are wary of investor reactions due to
the highly sensitive nature of the product in the soft ICD
market.
St. Jude and its peers
Medtronic
(
MDT
) and
Boston Scientific
(
BSX
) are contending in a soft CRM market. A still choppy U.S.
defibrillator market continues to weigh on the company's CRM
results. We expect the company to offer some visibility on the
prevailing CRM market condition/trends, and update on its pipeline
as well as guidance for the third quarter during the call. We are
currently Neutral on the stock, which carries a short-term Zacks #3
Rank (Hold).
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