Free Annual Reports
St. Jude's Healthy Prognosis
Over the long haul, the stock market rewards profit and cash flow growth. Medical device firm St. Jude (NYSE:STJ) has taken care of business for more than a decade and rewarded shareholders with close to a 200% stock return. Its second quarter results represented more of the same, and future trends also look quite encouraging. (To help you invest in the medical industry, check out A Checklist For Successful Medical Technology Investment.)
TUTORIAL: Earnings Quality
Second Quarter Recap
Sales rose 10% to $1.4 billion as a 2% drop in U.S. sales were more than offset by a 23% jump in international markets that grew to account for more than 53% of the total top line. By product segment, cardiac rhythm management (CRM) sales help treat irregular heartbeats and made up nearly 55% of total sales, with growth a modest 1%. The fastest growing units included an 18% improvement in atrial fibrillation that deals with upper chamber heart beat inconsistencies and 35% jump in cardiovascular unit sales that competes with the likes of Edward Lifesciences (NYSE:EW) to treat heart valve and related cardiac surgeries.
SG&A expense growth outpaced the sales increase, rising nearly 15% to $513.8 million. So did R&D expense, which rose about 14%. A $32 million special charge to realign its CRM division helped send reported net earnings down 5.2% to $240.9 million, though this still represented a very healthy net margin of 16.7% of sales. Higher shares outstanding sent reported earnings down 6.5% to 72 cents per diluted share. Backing out the special charge, earnings were 85 cents per diluted share and came in ahead of analyst projections.
Outlook
Management currently anticipates full-year earnings between $3.25 and $3.30 per share. This would represent year-over-year growth of as much as 19.6%. Analysts currently project full-year sales growth of 11% for total sales of $5.7 billion.
The Bottom Line
St. Jude continued to grow robustly during the second quarter. This follows a trend of double-digit growth, which has persisted over the past five and 10 year periods. It also has a stellar track record of leveraging low double digit sales growth into profit growth that has averaged in excess of 21% over these two time periods.
This growth explains why St Jude's stock is up around 30% over the past five years to handily beat the market, which is about flat over this time frame. In terms of rivals, diversified health care giant Johnson & Johnson (NYSE:JNJ), which operates in the cardiovascular space primarily through its Cordis unit, also has a flat stock chart over this period while Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) are even bigger laggards and are down approximately 20 and 60%, respectively.
St. Jude is projected to continue to grow its existing business and is said to have a strong product pipeline, including an upcoming U.S. release of the Quadra defibrillator that is already seeing strong growth in Europe. At a forward P/E of 13 and history of strong operating cash flow growth, the valuation looks quite reasonable given the growth projections for its operations. (Before you start investing in medical companies, read Investing In Medical Equipment Companies.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
TUTORIAL: Earnings Quality
Second Quarter Recap
Sales rose 10% to $1.4 billion as a 2% drop in U.S. sales were more than offset by a 23% jump in international markets that grew to account for more than 53% of the total top line. By product segment, cardiac rhythm management (CRM) sales help treat irregular heartbeats and made up nearly 55% of total sales, with growth a modest 1%. The fastest growing units included an 18% improvement in atrial fibrillation that deals with upper chamber heart beat inconsistencies and 35% jump in cardiovascular unit sales that competes with the likes of Edward Lifesciences (NYSE:EW) to treat heart valve and related cardiac surgeries.
SG&A expense growth outpaced the sales increase, rising nearly 15% to $513.8 million. So did R&D expense, which rose about 14%. A $32 million special charge to realign its CRM division helped send reported net earnings down 5.2% to $240.9 million, though this still represented a very healthy net margin of 16.7% of sales. Higher shares outstanding sent reported earnings down 6.5% to 72 cents per diluted share. Backing out the special charge, earnings were 85 cents per diluted share and came in ahead of analyst projections.
Management currently anticipates full-year earnings between $3.25 and $3.30 per share. This would represent year-over-year growth of as much as 19.6%. Analysts currently project full-year sales growth of 11% for total sales of $5.7 billion.
The Bottom Line
St. Jude continued to grow robustly during the second quarter. This follows a trend of double-digit growth, which has persisted over the past five and 10 year periods. It also has a stellar track record of leveraging low double digit sales growth into profit growth that has averaged in excess of 21% over these two time periods.
This growth explains why St Jude's stock is up around 30% over the past five years to handily beat the market, which is about flat over this time frame. In terms of rivals, diversified health care giant Johnson & Johnson (NYSE:JNJ), which operates in the cardiovascular space primarily through its Cordis unit, also has a flat stock chart over this period while Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) are even bigger laggards and are down approximately 20 and 60%, respectively.
St. Jude is projected to continue to grow its existing business and is said to have a strong product pipeline, including an upcoming U.S. release of the Quadra defibrillator that is already seeing strong growth in Europe. At a forward P/E of 13 and history of strong operating cash flow growth, the valuation looks quite reasonable given the growth projections for its operations. (Before you start investing in medical companies, read Investing In Medical Equipment Companies.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
Free Annual Reports
