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St. Jude Medical: Strong Pipeline, Despite Healthcare Law Tax

By    |   Tuesday, 03 Jul 2012 11:32 AM

St. Jude Medical (STJ) is in a strong position in regard to its pipeline of new products, analysts believe. Nevertheless, uncertainty about the impact of new taxes on those products, part of the healthcare reform law that just passed Supreme Court muster, has St. Jude management warning of “material impacts” to come.

St. Jude Medical develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology and cardiac surgery and atrial fibrillation therapy areas and neurostimulation medical devices for the management of chronic pain. Its products are sold in more than 100 countries.

STJ’s four operating segments are Cardiac Rhythm Management (CRM), Cardiovascular (CV), Atrial Fibrillation (AF) and Neuromodulation (NMD). The CV operating segment focuses on both the cardiology and cardiac surgery therapy areas.

R&D expenses were $705.1 million (12.6 percent of net sales) in 2011. In addition to generating growth internally through R&D, St. Jude also makes strategic acquisitions and investments to access new technologies and therapy areas.

Under U.S. healthcare reform law, management said, a 2.3% excise tax on all U.S. medical device sales will begin in 2013. U.S. net sales represented approximately 47 percent of worldwide consolidated net sales in 2011.

“We still expect the new tax will materially and adversely affect our business, cash flows and results of operations. The law also focuses on a number of Medicare provisions aimed at improving quality and decreasing costs. It is uncertain at this point what impacts these provisions will have on patient access to new technologies,” management said in a filing.

St. Jude Medical has a market cap of $12.56 billion in a sector, healthcare equipment and supplies, where the average company size is $4.68 billion. Its trailing 12-month P/E ratio is 16.21 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.71, compared to 2.20 for the sector.

Its projected earnings per share growth for the coming year is 6.36 percent, compared to a sector average of 15.61 percent.

Strong pipelines


Wall Street is bullish on STJ, with buy or outperform calls from Morgan Stanley, Credit Suisse, Goldman Sachs, Piper Jaffray, Standard & Poor’s Equity Research, UBS, Deutsche Bank and B.P. Bernstein. Citigroup Investment Research rates the stock a sell.

“We are encouraged by STJ's initiatives to continue to grow market share in each of its major categories, with strong pipelines of what we view as innovative technologies. Promising new and pending products include wireless monitoring technology for heart failure patients, a pericardial stented tissue valve, and a quadripolar CRT-D,” S&P analysts wrote recently.

St. Jude Medical next reports on July 18.

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