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|St. Jude Medical Inc. |(STJ-NYSE) |$79.01 |

Note: This report contains substantially new information. Subsequent reports will have changes highlighted.

Reason for Report: 3Q16 Earnings Update

Prev. Ed.: Aug 25, 2016 (2Q16 Earnings Update)

Brokers’ Recommendations: Positive: 5.56% (1 firm); Neutral: 94.4% (17 firms); Negative: 0% (0) Prev. Ed.: 17; 1; 0

Brokers’ Target Price: $78.04 (↑$1.95 from the last edition; 13 firms) Brokers’ Avg. Expected Return: -1.2%

* Note: Though dated Nov 18, share price and broker materials are as Oct 25.

* *Note: A Flash Update on 3Q16 earnings was done on October 19, 2016.

Note: The tables below (Revenue, Margins, and Earnings per Share) contain material from fewer brokers than in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

Headquartered in St. Paul, MN, St. Jude Medical Inc. (STJ) is a leading worldwide manufacturer and distributor of innovative cardiovascular and implantable neurostimulation medical devices.

St. Jude is all set to be acquired by Abbott Laboratories in a $25 billion deal. Shareholders will receive $46.75 in cash and 0.8708 shares of Abbott common stock, representing approximately $85 per share.

Of the 18 firms covering the stock, 17 firms conferred Neutral ratings and 1 firm provided Positive ratings. Target prices range from $54.00 to $89.00, with the average pegged at $78.04.

Neutral or equivalent outlook (17/18 firms): The neutral firms are concerned about lackluster performance of MRI compatible CRM (cardiac rhythm management) products in the U.S. However, solid performance in Atrial Fibrillation, Neuromodulation, and Cardiovascular segments buoys optimism for St. Jude. The company is also well poised on the series of launches slated for the upcoming quarters. Meanwhile, foreign currency headwinds, integration risks, uncertainty over reimbursements and cutthroat competition are likely to mar opportunities for the company.

Positive or equivalent outlook (1/18 firms): The bullish firms are confident about St. Jude’s ability to drive growth in the upcoming quarters, driven by key pipeline products, upcoming launches and accretive acquisitions. The firms are also bullish on the U.S. approval for the Ensite Precision Cardiac Mapping System, the launch of next-gen insertable cardiac monitor in Europe and submission to the FDA for approval, the launches of both the DR Burst stimulator and directional lead for Deep-Brain Stimulation in the U.S. The positive firms are also confident that the company will be able to generate significant sales in the high-growth markets of Atrial Fibrillation, Cardiovascular and Neuromodulation.

Negative or equivalent outlook (0/18 firms):

Conclusion: The firms are optimistic about St. Jude’s solid product pipeline and the Abott takeover. However, the company faces intense competition, especially in high-growth markets. In fact, lackluster performance by CRM (cardiac rhythm management) products in the U.S. is also likely to dampen the company’s growth prospects.

Nov 18, 2016

Overview

St. Jude Medical Inc. (STJ) is focused on the development, manufacture and distribution of medical devices to treat cardiovascular and neurological conditions. Net sales were $5.54 billion in FY15.

St. Jude’s seven principal product lines are: ICD Systems, Atrial Fibrillation Products, Pacemaker Systems, Vascular Products, Structural Heart Products, Neuromodulation Products and Thoratec Products.

Effective first quarter 2016, St. Jude started reporting product categories under five groups: Atrial Fibrillation (AF), Heart Failure (HF), Neuromodulation, traditional Cardiac Rhythm Management (CRM) and Cardiovascular.

The firms identified the following issues for evaluating the investment merits of STJ:

|Key Positive Arguments |Key Negative Arguments |

|The company is on track regarding the launches of Ensite Precision Cardiac |Competitive products in the CRM market pose a major headwind. An |

|Mapping System and the next-gen insertable cardiac monitor. St. Jude’s robust |unsatisfactory performance by the company’s CRM segment is also likely |

|product pipeline, comprising the CardioMEMS HF system, Nanostim leadless |to mar opportunities. |

|pacemaker and Portico TAVR, should lead to market share gains. | |

|Investment in new therapy areas (especially within the cardiovascular and AF |With escalating health care costs, hospitals and insurance companies |

|market) is seen as a major impetus for growth. Recent tuck-in acquisitions |are trying to keep costs low, which puts pricing pressure on companies |

|should further boost revenues of the company’s non-CRM businesses. |like St. Jude. |

|Acquisitions of Thoratec, CardioMEMS, NeuroTherm and Spinal Modualtion have |St. Jude’s exposure to international markets has led to significant |

|significantly expanded the company’s product portfolio. The acquisition of |foreign exchange fluctuations, which is adversely affecting |

|Thoratec is also expected to significantly complement St. Jude’s existing set |profitability. |

|of products. | |

Additional information about the company is available online at

Note: The company’s fiscal year coincides with the calendar year.

Nov 18, 2016

Long-Term Growth

Firms are confident that St. Jude’s long-term growth potential is strong enough to overcome short-term headwinds. Changing demographics toward an ageing population in developed nations combined with improving financial conditions of emerging markets offer considerable growth opportunities for St. Jude.

With continuous economic growth in the developing nations, substantial investment in the health care sectors is largely expected in these countries. The firms believe that St. Jude’s consistent efforts to innovate treatment options to cater to the healthcare needs of people will pay off well in the long run. Moreover, the company’s focus on the development of life-saving and critical devices protects it from short-term procedural volume and capital budget headwinds.

Positive momentum has been demonstrated by St. Jude’s expanding product portfolio that comprises defibrillators and pacemakers, which constitute its major businesses. In addition, the replacement market plays a major role in boosting growth at the company. The company has been gaining market share in ICD since 2001. An ICD needs to be replaced after approximately seven years. So in the long run, demand for new ICDs will rise along with an increase in demand for replacement of the company’s existing ICDs.

The firms anticipate revenue growth over the long term on the back of new product introductions and increased penetration into potential patient populations. The firms also expect margins to improve on the back of the Thoratec acquisition and new CRM product launches. Notably, CRM products are usually high margin, so increased sales will subsequently boost margins.

The acquisition of Thoratec holds important long-term prospects for St. Jude from the product portfolio perspective. Thoratec’s healthy product pipeline (including HeartMate 3 and HeartMate PHP) is expected to significantly complement the company’s existing product portfolio.

However, a tough pricing environment and increasing competition in most of the operating markets pose headwinds in the long run.

Nov 18, 2016

Target Price/Valuation

|Rating Distribution |

|Positive |5.6%↓ |

|Neutral |94.4%↑ |

|Negative |0.0% |

|Avg. Target Price |$78.04↑ |

|Maximum Target |$89.00 |

|Minimum Target |$54.00 |

|Upside from Current |-1.2% |

|No. of Firms with Target Price |13/18 |

Risks to the target price include, but are not limited to, the inability to gain CRM market share, pricing pressure, inconsistent execution, product quality issues whether at the company or even at its competitors’ level, foreign currency fluctuation and a failure to leverage investment in restructuring.

Recent Events

On Nov 16, St. Jude Medical announced positive results from its MOMENTUM 3 U.S. IDE Clinical Study, which compared the HeartMate 3 Left Ventricular Assist System (LVAS) to the HeartMate II LVAS in treating advanced stage heart failure. Notably, the trial results were featured in the American Heart Association (AHA) Scientific Sessions in New Orleans.

On Nov 7, St. Jude announced CE Mark approval for magnetic resonance (MR) conditional labeling for its Quadra Allure MP cardiac resynchronization therapy pacemaker (CRT-P). Notably, the pacemaker is approved with MRI labeling and is exclusively designed to work with the Quartet LV lead. Quartet has four electrodes which produce high flexibility for different pacing configurations and help manage issues in heart failure patients.

On Nov 1, St. Jude announced long-term data from RESPECT, a clinical trial covering nearly 1,000 patients diagnosed with patent foramen ovale (PFO) during the First Report session at the 2016 Transcatheter Cardiovascular Therapeutics conference in Washington, D.C.

On Oct 28, St. Jude announced the launch of AMPLATZER PFO Occluder to reduce the risk of recurrent ischemic strokes in patients with a patent foramen ovale (PFO), a small opening between the upper chambers of the heart.

On Oct 19, St. Jude reported 3Q16 results. Highlights are as follows:

• Sales improved 11.9% y/y to $1.49 billion

• Adjusted EPS increased 2.1% on a y/y basis to $0.99

Revenues

According to the 3Q16 press release, total sales increased 11.9% year over year at constant currency (cc) to $1,499 million.

International sales increased 13% at cc to $716 million, while U.S. sales grew 11% to $783 million.

Provided below is a summary of revenue as compiled by Zacks Digest:

|Revenues ($ in million) |3Q15A |

|Copy Editor |Parijat Sen |

|Content Editor |Nilendu Saha |

|Lead Analyst |Nilendu Saha |

|QCA |Urmimala Biswas |

|Reason for Update |3Q16 Earnings Update |

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Nov 18, 2016

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