We reiterate our Neutral recommendation on
St. Jude Medical
). St. Jude reported second quarter 2012 adjusted earnings per
share of 88 cents beating the Zacks Consensus Estimate by a penny
and surpassing the year-ago earnings of 85 cents per share.
Reported net revenues of $1,410 million were down 2% year over
year and missed the Zacks Consensus Estimate of $1,430 million. Net
sales rose 1% on constant currency basis. Weak Cardiac Rhytm
Management ("CRM") and vascular product sales more than offset
growth of the smaller Atrial Fibrillation ("AF") and
The company reduced its forecast for the second half of 2012 by
about $35 to $40 million (or $0.04-$0.05) mainly due to adjustments
in currency assumption. However, profits inched up as lower
expenses offset weak revenue generation.
St. Jude is a leading medical device manufacturer producing
healthy growth over the past decade. We believe that revenue growth
will be fueled by numerous product introductions and technological
advancements. The company unveiled a number of growth drivers (7 in
the cardiovascular segment alone) which are expected to drive
accelerated sales growth over the long term.
The Trifecta and the Epic product lines represent some of the
major new drivers for the company's Cardiovascular business. St.
Jude's tissue valve business is currently growing at a rate of
around 45%, and with hardly 20% market share in the $1 billion
worth global market, this business has a huge potential to expand
its market size in the long term.
St. Jude remains optimistic about its entry into the
transcatheter aortic valve replacement ("TAVR") market with its
Portico valve. Other new growth drivers include the patent foramen
ovale ("PFO") closure and the left atrial appendage ("LAA") closure
system within the structural heart program, which are used to treat
patients with severe stroke.
The Ilumien product line is a major catalyst to Fractional Flow
Reserve ("FFR") revenue growth. The new renal denervation catheter
and generator system, EnligHTN, for treating resistant hypertension
is another emerging opportunity expected to accelerate growth in
2013. St. Jude received CE Mark approval and launched the product
in Europe during the EuroPCR 2012.
While a host of new growth drivers (including new products and
cost saving measures) are expected to boost results in 2013 and
beyond, we remain cautious about the increased competition,
weakening Euro, the soft CRM business and the overall tough
Foreign exchange movements are unfavorably impacting results in
2012. The company derives more than half of its revenues from
international operations, primarily Europe and Japan. Therefore,
the strengthening U.S. dollar, primarily against the Euro is
expected to hurt its international revenues and subsequently its
Apart from the weakening Euro, the company also attributed its
downward revision of guidance to competitive pressures and the risk
of a sluggish market uptick considering the ongoing difficult
macroeconomic conditions. The company expects these factors to
affect growth for the next two quarters.
A still choppy CRM space overhangs on St. Jude and its peers
). Our long-term Neutral recommendation on St. Jude carries a
short-term Zacks #4 Rank (Hold) rating.
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