St. Jude (STJ) Profit Potential Could Have Investors Singing - Barron's

June 1, 2012 10:22 AM EDT
St. Jude (to the tune of "Hey Jude"):

"Saaiintt Jude [investors],
Don't be afraid;
You were meant tooooo,
Go out and get more.

And any time you feel pain, St. Jude [investors], refrain,
From exiting the ICD giant as a holding."

Shares of St. Jude Medical (NYSE: STJ) are in need of some slight defribillation Friday (but not as much as many other stocks in the market) despite a positive outlook from Barron's late Thursday.

St. Jude shares are down about 24 percent from the same period last year, giving shares a multiple of 10.4 times expected 2013 earnings. But Barron's thinks there's more to St. Jude than meets the eye.

To start, the market for implantable defibrillators, devices that regulate a rapid heartbeat, has shrunk (either due to people eating more pomegranate or opting for the cheaper, yet less effective, "car battery method" for heartbeat regulation).

Otherwise, St. Jude is still big in categories like replacement heart valves and neurological devices. In addition, the company has a string of products in its pipeline which could propel it well above Street estimates for 2013. For example, the company is working on heart valve replacements which can be implemented without cutting open a patients chest. Morgan Stanley sees the new markets for St. Jude at $5 billion annually.

Despite the pipeline, Barron's noted 54 percent of St Jude's top-line came from pacemakers and defibrillators, causing a hangup for many investors. The company's Riata is currently under FDA recall for wires which can penetrate their silicone housing. In addition, doctors are now taking a harder look at St. Jude's Durata lead, which shares a similar design to the Riata. Unlike Riata, however, the Durata hasn't been linked to any problems as of yet, which will be bullish for St. Jude as more time passes and reports about its reliability begin to emerge.

St. Jude's new ICD, the Utility Quadra, is also getting a positive reception from the medical community.

Based on the data, some analysts believe St. Jude's top-line could grow to $7.1 billion by 2018.

One final caveat Barron's highlighted was the acquisition of a 19 percent stake in CardioMEMS. Though the position was entered into during 2010, CardioMEMS implantable heart sensor has yet to receive acceptance from an FDA advisory panel.

So St, Jude... don't make it bad, take your sad stock and make it better. With a promising pipeline and better odds for ICDs, investors could be singing "Na, na, na, na na na naaaa..." all the way to the bank,

Shares are off about 1.2 percent Friday.

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