St. Jude's preliminary fourth-quarter 2014 results reflect strong
momentum at the company's CardioMEMS technology and Atrial
Fibrillation business. Most of the segments are expected to report
within or above the company's previously issued guidance, which is
a positive in our view. We note that the company's top line
incorporates a considerable negative impact from recent foreign
currency movements. In fact, U.S. manufacturers such as St. Jude
that generate a significant portion of their revenues from overseas
are being hurt by a strengthening U.S. dollar, which has benefited
from more upbeat U.S. economic prospects compared to the rest of
the world. We feel that the strong U.S. dollar which is impacting
the company's revenues will also hurt its bottom line.
Nevertheless, an expanding and innovative product portfolio,
accretive acquisitions and aggressive share buyback programs will
drive growth in 2015 and beyond. Considering these factors, we
maintain Neutral recommendation and set a target price of $70.00.
Headquartered in St. Paul, MN, St. Jude Medical Inc. (STJ) is a
leading global manufacturer and distributor of innovative
cardiovascular and implantable neurostimulation medical
St. Jude reported net sales of $5.5 billion in 2013. In the nine
months ended Sep 27, 2014, sales increased 2.5% year over year to
$4.18 billion. U.S. revenues grew 1.2% to $2 billion while
international revenues scaled 3.8% to $2.2 billion.
On Jan 28, 2014, St. Jude announced consolidation of two of its
operating divisions Implantable Electronic Systems Division (IESD)
and Cardiovascular & Ablation Technologies Division (CATD) --
into a single operating unit, which derives revenues from six
principal product categories. The integration has been conducted in
a phased approach in 2014.
The company's six principal product categories are as
Tachycardia Implantable Cardioverter Defibrillator (ICD) systems
(31.6% of total revenues in the first nine months of 2014)
Bradycardia pacemaker (pacemaker) systems (18.8%)
Atrial Fibrillation (AF) products (18.2%)
Vascular products (12.5%)
Structural Heart products (11.5%)
Neuromodulation products (7.4%)
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