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On Sep 18, we retained St. Jude Medical Inc. (STJ - Analyst Report) at Neutral following its second-quarter results. Despite a difficult Med-tech space, it is worthwhile to note this medical devices giant’s strong ability to drive bottom-line growth on the back of cost-saving measures and restructuring efforts.
Why the Retention?

On Jul 17, St. Jude’s second-quarter adjusted earnings per share of 96 cents beat the Zacks Consensus Estimate of 94 cents, and transcended the year-ago earnings by 9.1%. Revenues grew 2% in constant currency to $1,403 million, comfortably exceeding the Zacks Consensus Estimate of $1,364 million. Based on its progress, STJ raised the bottom end of its adjusted earnings for 2013 to the band of $3.70–$3.73 from the earlier band of $3.68–$3.73.

The company’s earnings have managed to beat the Zacks Consensus Estimate in 3 out of the last 4 quarters, while meeting the same in the first quarter of 2013, with an average surprise of 2.27%. Following the earnings release, the Zacks Consensus Estimate for 2013 increased 0.3% to $3.73 per share over the last 60 days. The Estimate for 2014 also increased 0.3% to $3.97 over the same period.   

A spate of new growth drivers such as product launches and strategic acquisitions are expected to lead to accelerated sales growth. The Atrial Fibrillation business has been posting double-digit growth and is expected to maintain this momentum going forward. We are also positive on St. Jude’s restructuring and cost saving measures that are helping to maintain the bottom line.

However, St. Jude faces increased competitive and pricing pressures, as well as currency fluctuations and other macroeconomic headwinds. Although the core Cardiac Rhythm Management business is showing recent signs of stability, the underlying market continues to be weak.

Other Stocks to Consider

Other medical stocks worth considering are Alere (ALR - Snapshot Report), with a Zacks Rank #1 (Strong Buy), and Exactech (EXAC - Snapshot Report) and Boston Scientific (BSX - Analyst Report), both carrying a Zacks Rank #2 (Buy).

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