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On May 9, we retained St. Jude Medical Inc. (STJ - Analyst Report) at Neutral, following its first-quarter results. In spite of a declining top line due to difficult end-market pressures, the company was able to maintain its bottom-line growth.
Why the Retention?

On Apr 17, St. Jude posted first-quarter 2013 adjusted earnings per share of 92 cents, which was in line with the Zacks Consensus Estimate. It transcended the year-ago earnings by 7%. Revenues dropped 4% (down 3% in constant currency) year over year to $1,338 million and missed the Zacks Consensus Estimate of $1,368 million.

The company’s earnings have managed to beat the Zacks Consensus Estimate in 3 out of the last 4 quarters with an average surprise of 1.95%. It managed to meet the Zacks Consensus Estimate in the last reported quarter. Following the earnings release, the Zacks Consensus Estimate for 2013 and 2014 remained unchanged at $3.70 and $3.95, respectively.

St. Jude’s declining top line with all segments reporting disappointing results (except the Atrial Fibrillation segment) remains a cause of concern. The core Cardiac Rhythm Management (CRM) division continues to face multiple headwinds. We remain cautious about increased competition, pricing pressure, softness in CRM and cardiovascular sales along with currency fluctuations.  

However, management is confident that new products in 2013 will drive long-term growth for the company. We are also encouraged with St. Jude’s restructuring and cost saving measures, which are helping to maintain the bottom line.

Other Stocks to Consider

St. Jude has a Zacks Rank #3 (Hold). While we remain on the sidelines regarding STJ, medical stocks such as Conceptus , TG Therapeutics (TGTX - Snapshot Report) and AtriCure (ATRC - Snapshot Report) warrant a look. While Conceptus carries a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy).

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