It appears someone lit a firecracker under St. Jude Medical (NYSE:STJ) on New Year’s Eve.
Shares of the St. Paul, Minn.-based medical device company have skyrocketed about 22% since the beginning of the year and now trade just under the company’s 52-week high of $52.57. St. Jude has far outpaced the Dow, as well as rivals Medtronic (NYSE:MDT), Boston Scientific (NYSE:BSX) and Edwards LifeSciences (NYSE:EW).
Investors have to wonder if St. Jude is just riding the tide of some recent good news and is subject to a pullback once the dust settles. Or is the company on a roll, and will investors who don’t jump aboard now have serious regrets down the line?
The signs for St. Jude certainly point north. This year the company is expected to launch what one industry analyst called the “most important new product” in implantable cardiac defibrillators (ICD) in the last nine years. Quadra, as it’s called, is expected to earn St. Jude cherished share points in the market for implantable cardiac defibrillators. The market is expected to reach nearly $8 billion worldwide by 2014, with much of the growth coming outside the U.S.
Given the size and scope of its international operations, St. Jude is in a sweet position.
Investors were also enthused by St. Jude’s recent opening of its Advanced Technology Center in Beijing. The center for education and learning gives the company a nice foothold in China and the broader Asia Pacific region, where a big chunk of the growth of the ICD market is expected.
One of the knocks against St. Jude has been that it didn’t pay a dividend. That’s been rectified. In February the St. Jude board approved a quarterly dividend of 21 cents a share that makes the stock somewhat more attractive with a yield of about 1.6%.
The company also expanded its offerings in the fast-growing cardiovascular market late last year by acquiring AGA Medical Holdings in a deal valued at just more than $1 billion. In 2009, AGA sold nearly $200 million of its devices to treat heart defects and cardiovascular disease.
So is there anything not to like about St. Jude? Of course. Some industry followers worry about pricing pressures driven by the competition, the dilutive impact of acquisitions and the impact of unfavorable currency exchange fluctuations on the company’s bottom line. Others have expressed concerns about whether a continuing ongoing U.S. probe of Medicare billing for implantation of ICDs will affect future use of the products.
None of these potential issues have taken the wind out of the sails of St. Jude CEO Daniel Starks. At an investor meeting in February, Starks boasted that the company has left most of its rivals “in the dust.” He also chided investors for not recognizing the potential for the company’s new and soon-to-be launched products.
All in all, St. Jude looks attractive, given a forecast of healthy sales and earnings growth, a packed pipeline of new products, a healthy balance sheet and a reasonable price-to-earnings ratio of about 19. This doesn’t appear to be a stock that’s going to fizzle out anytime soon.
Another option for investors looking for a broader play is the PowerShares Dynamic Heathcare (NYSE:PTH) exchange-traded fund, which holds nearly 3% of its assets in St. Jude.
