Medical device major,
St. Jude Medical
) is slated to announce its third quarter results before the
opening bell on Wednesday, October 17. The current Zacks Consensus
Estimate for the third quarter is 80 cents, representing estimated
year-over-year growth of 3.13%.
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Second Quarter Recap
St. Jude's second-quarter 2012 adjusted earnings per share of 88
cents beat the Zacks Consensus Estimate by a penny and exceeded the
year-ago earnings of 85 cents. In the quarter, reported profit
inched up 1.2% to $244 million (or 78 cents a share) as lower
expenses offset weak revenue generation.
The Minnesota-based medical technology giant reported net revenues
of $1,410 million, down 2% year over year, beating the Zacks
Consensus Estimate of $1,430 million. Sustained poor performance
across the Cardiac Rhythm Management (CRM) unit and the vascular
unit more than offset growth at the company's smaller Atrial
Fibrillation (AF) and Neuromodulation franchises.
Revenues from the core CRM segment dropped 6% year over year to
$746 million, indicating continued softness in the CRM market.
Implantable Cardioverter Defibrillator ("ICD") revenues dipped 4%,
while pacemaker sales declined 9%.
However, AF revenues grew 5%, but sales were affected by slower
uptake of AF capital equipment, indicating a tough hospital
spending scenario. Neuromodulation sales increased 2%, led by new
products launches. The Cardiovascular franchise inched down 1%,
reflecting the impact of a termination of a vascular products
distribution contract in Japan.
Estimate Revisions Trend
There is a moderate positive bias in estimate revisions for both
the September quarter and the full year. The past 7 days have seen
one of eighteen estimates rise for the quarter and none moving in
the opposite direction. The past 30 days have seen two of eighteen
estimates rise for the quarter, and one estimate moved in the
opposite direction in the same period.
The past 7 days have seen one of nineteen estimates rise for the
full year 2012 move north, while none moving in the opposite
direction. The past 30 days have seen three of nineteen estimates
rise for the year, and one estimate moved in the opposite direction
in the same period.
Estimates for both the third quarter and full year remained
unchanged at 80 cents per share and $3.43, respectively, over the
past week and month. The current Zacks Consensus Estimate for
full-year 2012 is $3.43 per share, representing an estimated
year-over-year growth of 4.61%.
With respect to earnings surprises, St. Jude has posted positive
surprises in the preceding four quarters. It has delivered an
average positive earnings surprise of 2.44% over the past four
quarters, implying that the company has surpassed the Zacks
Consensus Estimate by that measure. Third quarter earnings are also
expected to meet expectations.
With a market cap of $13.37 billion, St. Jude is a leading medical
device manufacturer with a solid rate of growth over the past
decade. We believe that new product development and penetration
into emerging markets will drive long-term growth for the company.
Moreover, stabilizing trend in the U.S. ICD market and St. Jude's
continuing market share gain in the ICD space, despite the Riata
lead problem, is a positive sign.
New products such as the Quadra, Ellipse, EnligHTN, Accent MRI as
well as the transaortic valve replacement (TAVR) and the
percutaneous mitral valve repair (PMVR) will drive market share
gains and above-market growth. Moreover, recently released positive
data from the FAME II clinical trial is expected to further expand
the growth opportunity for the Fractional Flow Reserve (FFR)
Recently, St. Jude announced that it is consolidating its four
operating segments into two units to reduce operating expenses as a
necessary measure to hedge against the upcoming MedTech tax from
2013. The company also changed the executive heads leading the
business segments and eliminated roughly 300 employees in the
However, St. Jude expects a weak Euro, competitive pressures and
risk of a sluggish market, given the ongoing difficult
macroeconomic conditions to be a drag on the company's results. St.
Jude and its peers
Boston Scientific Corporation
) are contending in a soft CRM market.
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 fourth quarter during the call. We are currently
Neutral on the stock, which carries a short-term Zacks #3 Rank