Earnings Preview: St. Jude - Analyst Blog
July 19 2011 - 10:30AM
Zacks
Medical devices major St.
Jude Medical (STJ) is scheduled to release its
second-quarter fiscal 2011 results before the opening bell on
Wednesday, July 20. In its first quarter commentary, the
Minnesota-based company noted that it expects second quarter
adjusted earnings per share of between 83 and 85 cents. The current
Zacks Consensus Estimates for
revenues and earnings for the quarter are $1,448 million and 84
cents a share, respectively.
With respect to earnings surprises,
St. Jude has posted four positive surprises in the preceding four
quarters and we expect this positive streak to continue in the
second quarter. St. Jude has delivered an average positive earnings
surprise of
4.50% over the past four quarters, implying that it has
beaten the Zacks Consensus Estimate by that measure.
First-Quarter
Flashback
St. Jude’s first quarter adjusted
earnings per share of 80 cents beat the Zacks Consensus Estimates
by a couple of cents and surpassed the year-ago earnings of 75
cents. Profit, as reported, fell 2.2% year over year to $233
million (or 71 cents a share), hit by charges associated with the
company’s acquisition of cardiac devices maker AGA Medical.
Revenues climbed 9% year over year
to $1,376 million, buoyed by healthy growth across the company’s
Cardiovascular, Atrial Fibrillation and Neuromodulation franchises.
Sales matched the Zacks Consensus Estimate.
Revenues from St. Jude’s core
Cardiac Rhythm Management (“CRM”) division edged up 1% year over year to
$762 million as higher ICD sales were partly dampened by a
soft Pacemaker business. St. Jude witnessed double-digit growth
across its Atrial Fibrillation, Neuromodulation and Cardiovascular
businesses. St. Jude has raised its
earnings forecast for fiscal 2011.
Estimate Revisions
Trend
Agreement
Estimates for the second quarter
reflect a
negative sentiment with 4 out of 27 analysts lowering their
forecasts over the past week with none moving in the opposite
direction. Over the past month, 6 analysts have pruned their
estimates with no positive revisions, thereby manifesting a sheer
directional agreement. The current Zacks Consensus Estimate (of 84
cents) represents an estimated 6.33% year-over-year
growth.
For fiscal 2011, estimates are
clearly inclined towards the negative side with 4 analysts (out of 31) having
reduced their estimates over the last 7 days without any reverse
movements. Over the past 30 days, 5 analysts have lowered
their forecasts with a solitary upward revision.
Magnitude
Despite a number of negative
movements, the magnitude of revisions for the second quarter has
been static over the past week and month. However, estimate for
fiscal 2011 has reduced by a penny over the past week and month.
The current Zacks Consensus Estimate for fiscal 2011 is $3.30,
representing an estimated year-over-year
growth of 9.76%.
Neutral on St.
Jude
St. Jude is producing consistent
revenue growth over the past several quarters. The company is
poised for incremental opportunities in CRM on the back of strong
product momentum. St. Jude’s Fortify and Unify devices are already
gaining notable traction. Moreover, launch of several products
(including the quadripolar CRT systems) should boost the company’s
CRM market share in 2011.
We remain encouraged by St.
Jude’s ability to deliver consistent revenue and earnings
growth and believe that its second quarter results will be
supported by new products. Notably, the company’s Fortify and Unify
devices should help it gain ICD share.
The European clearance of the
Accent MRI pacemaker and the U.S. approval ShockGuard technology,
designed for use with the Fortify and Unify systems, represents an
incremental positive for the company. Also, St. Jude’s strategic
investment in cardiac devices maker CardioMEMS represents another
significant opportunity to boost its technologies focused on
improving heart-failure management.
Another encouraging prospect is St.
Jude’s April 2011 pact with health care supply contracting company
Novation. Under the deal, Novation will make the company’s CRM
products available to some of the leading academic centers in the
U.S., which should broaden the use of St. Jude’s products and
technologies and boost its market share.
The U.S. approval of two new
irrigated ablation catheters (Safire BLU and Therapy Cool Path) for
treating cardiac arrhythmias should help St. Jude sustain the
healthy growth in Atrial Fibrillation through 2011. In
Neuromodulation, the European approval for the DBS system in the
migraine indication (expected in end-2011) and U.S. approval in
Parkinson’s disease (expected in 2012), represent
promising prospects.
On the Cardiovascular front,
synergies of the AGA Medical acquisition should boost results in
this division. Trifecta, which was launched in Europe in
fourth-quarter 2010 and was approved in the U.S. in April 2011,
represents a major new driver for this business.
However, St. Jude and its peers
Medtronic (MDT) and Boston
Scientific (BSX) are increasingly in a tussle to grab
CRM share. Deceleration in the ICD market growth rate may weigh on
the company’s CRM results in the second quarter. Also, a favorable foreign
exchange impact on the company’s top line is expected to be
somewhat offset by the Japan quake impact.
While we are impressed by St.
Jude’s solid fundamentals, strong product mix, healthy growth
trajectory and operating leverage, we remain wary about
competition-driven pricing pressure and a soft CRM market. Our
Neutral recommendation for the stock is supported by a Zacks #3
Rank (Hold).
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