Amid Headline Risk, Barclays Says St. Jude's Pipeline Underestimated

Barclays believes investors are underestimating St. Jude Medical, Inc. STJ’s pipeline and growth potential in future periods as it is working to close its merger with Abbott Laboratories ABT in the fourth quarter.

The brokerage noted that the merger synergies are conservative and the company says the allegations of Muddy Waters/Medsec that the allegations are without merit.

“Overall, we think that STJ is a good deal for ABT and a strategic fit, and that the STJ deal close in the 4Q and improvements in STJ's results next year can catalyze ABT's stock,” analyst Matthew Taylor wrote in a note.

Meanwhile, St. Jude reported third quarter EPS of $0.99 versus consensus $1.01 on revenue of $1.499 billion, slightly above consensus of $1.497 billion. The analyst says the results are “good enough” given top-line stability and low expectations for the company headed into the quarter.

“[G]iven continued strength in Neuro and AF, and improved growth in Cardio (which grew 12%, 17%, and 7% respectively), we expect STJ's top-line growth will turn around once STJ receives MRI labels for its pacers (2H16E) and ICD's/CRT-D's (1H17E),” Taylor noted.

Taylor has an Equal-Weight rating on the stock, with a price target of $83.

At time of writing, shares of St. Jude were up 0.76 percent to $79.30.