BMO Capital Downgrades St. Jude Medical On 'Less Compelling' Risk/Reward

In a report published Thursday, BMO Capital Markets analyst Joanne Wuensch downgraded the rating on St. Jude Medical, Inc. STJ from Outperform to Market Perform, while raising the price target from $80 to $81.

St. Jude reported its 2Q15 results ahead of expectations. The company raised its 2015 guidance of revenue growth to 4-6 percent ex-FX, from 4-5 percent ex-FX, and of EPS to $3.96-$4.00, from $3.92-$3.97.

Referring to the company’s acquisition of Thoratec Corporation THOR, analyst Joanne Wuensch said, “We do like this transaction, as it builds the company’s heart failure franchise, further minimizes its reliance on the lower-growth CRM market, and solidly moves the revenue growth rate of the company into the mid- to high-single-digit range.” Wuensch expects the Thoratec acquisition for $3.4 billion to be accretive to 2016 by ~$0.15, or ~3 percent.

In the report BMO Capital Markets noted reasons for not expecting an outperformance as:

• The growth drivers are better understood
• Having acquired Thoratec recently, St. Jude is unlikely to be a near-term acquisition candidate
• “The concerns regarding competitive quadripolar leads is proving unfounded (CRM sales were down 1% ex-FX in 2Q15, in line with the market growth rate).”
• The company’s shares are up 18 percent year-to-date, versus a 3 percent rise in the S&P 500, and 14 percent over the past 12 months, versus 7 percent for the S&P 500.

The EPS estimates for 2015 and 2016 have been raised from $3.95 to $3.99 and from $4.26 to $4.29, respectively.