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On Feb 13, we retained St. Jude Medical Inc. (STJ - Analyst Report) at Neutral, following its fourth-quarter results. In spite of the upbeat results, the medical devices giant provided a conservative 2013 guidance.
 
Why the Retention?

On Jan 23, St. Jude posted fourth-quarter 2013 adjusted earnings per share of 92 cents, which topped the Zacks Consensus Estimate by 2 cents and transcended the year-ago earnings of 86 cents. Revenues dropped 2% (down 1% in constant currency) year over year to $1,372 million, just ahead of the Zacks Consensus Estimate of $1,370 million.

The company’s earnings have also managed to beat the Zacks Consensus Estimates in the last four quarters with an average surprise of 2.36%. Over the past 30 days, the Zacks Consensus Estimates for 2013 and 2014 has moved up by 4 cents and 3 cents to $3.70 and $3.97, respectively.

However, St. Jude’s revenue guidance for 2013 looks dismal due to an extremely challenging healthcare environment. Meanwhile, we are impressed by the company’s focus on cost savings, restructuring and share repurchase programs to boost its bottom line. Sales for 2013 are expected to be down 1%–2% year over year, while adjusted earnings for the year are forecast to be up 6%–7%.

A still soft Cardiac Rhythm Management (CRM) market along with issues regarding the ICD leads has increased investor concerns. However, multiple growth drivers and an efficient management team should leverage long-term growth for the company.

Other Stocks to Consider

St. Jude has a Zacks Rank #3 (Hold). While we remain on the sidelines regarding St. Jude, other large-cap medical products companies worth a look are Medtronic, Inc. (MDT - Analyst Report), Covidien plc (COV - Analyst Report) and Edwards Lifesciences Corp. (EW - Analyst Report). All three are Zacks Rank #2 (Buy) stocks.

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