Will St. Jude Medical's (STJ) Earnings Miss the Mark in Q1? - Analyst Blog

St. Jude Medical Inc.STJ is slated to release its first-quarter 2015 earnings results on Apr 22. Last quarter, the company had reported earnings in line with the Zacks Consensus Estimate. Notably, St. Jude Medical's earnings have outpaced the consensus estimate in the last four quarters, with an average beat of 1.00%.

Let's see how things are shaping up prior to this announcement.

Factors to be Considered this Quarter

St. Jude Medical's CardioMEMS technology and Atrial Fibrillation business continues to prosper and drive significant growth for the company. We note that an expanding and innovative product pipeline remains as St. Jude's core strength in 2015. Moreover, the company has improved its quality systems and product quality, as well as resolved two FDA warning letters. This will help rollout of new products in 2015.

Moreover, the CardioMEMS program, AF ablation program and neuromodulation program in the United States are key growth catalysts in 2015. St. Jude Medical's CRM business continues to generate significant operating profit that is helping the company to invest in new growth opportunities.

On the flip side, the company's top line for the first quarter may be considerably hurt by unfavorable foreign currency movements. The company derives more than half of its revenues from international operations, primarily in Europe and Japan. The strong U.S. dollar against Japanese yen and some other Latin American currencies will continue to impede sales growth.

For the first quarter of 2015, St. Jude expects sales to grow in the range of 2% to 4% at cc. Foreign exchange volatility is expected to negatively impact sales by approximately $85 to $100 million. Earnings for the first quarter are forecasted in the range of 90 to 92 cents per share.

Earnings Whispers

Our proven model does not conclusively show that St. Jude Medical is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -1.10% for St. Jude as the Most Accurate estimate stands at 90 cents while the consensus estimate is pegged higher at 91 cents.

Zacks Rank: St. Jude Medical has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive earnings ESP to be confident of an earnings surprise.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other companies to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter.

Laboratory Corp. of America Holdings LH has an earnings ESP of +0.61% and a Zacks Rank #1.

Valeant Pharmaceuticals International VRX has an earnings ESP of +0.43% and a Zacks Rank #1.

Cognex Corp CGNX has an earnings ESP of +4.35% and bears a Zacks Rank #1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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