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On Jan 2, Zacks Investment Research downgraded St. Jude Medical Inc. (STJ - Analyst Report) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).

Why the Downgrade?

St. Jude lately announced its receipt of the highly regarded CE mark approval for its 25 mm Portico Transcatheter Aortic Heart Valve Implantation System. This milestone achievement assures the company of a likely steady flow of revenues through the coming quarters, especially in the European Markets.

However, the recent delays in getting the FDA approval dampens the growth potential in the Cardiac Rhythm Management (CRM) segment of the company. Further, the impact associated with the healthcare reform measures is uncertain as players in the health care sector are striving hard to sustain themselves amid changes introduced by The Patient Protection and Affordable Care Act. Medical device makers like STJ are also worried about the high medical device excise tax, imposed by the Obama administration, which threatens to erode margins and in turn, affect profitability.

The persistent weak macro-economic conditions could further hinder the growth prospects as the company is already facing pricing pressure, accompanied with austerity measures.  Moreover, the increased competition from Medtronic, Inc. (MDT - Analyst Report) and Boston Scientific Corp. (BSX - Analyst Report) threatens to eat into STJ’s market share.

St. Jude Medical reported third-quarter 2013 adjusted earnings per share of 90 cents, beating the Zacks Consensus Estimate by a penny. Revenues of $1,338 million also exceeded the Zacks Consensus Estimate of $1,321 million. Though STJ exceeded the Zacks Consensus Estimates on both earnings and revenue fronts, a decline in the gross margin remains a cause of concern.

Other Stocks to Consider

Investors interested in the medical devices industry can look at Cardiovascular Systems Inc. (CSII - Snapshot Report) carrying a Zacks Rank #1 (Strong Buy).

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