St. Jude Medical: Expanding Facilities, Expanding Profits

| About: St. Jude (STJ)

Shares of St. Jude Medical (NYSE:STJ) traded up to fresh 52-week highs today, one day after the ribbon cutting ceremony on the new St. Jude Medical Advanced Technology Center Asia Pacific in Beijing. The new facility is expected to be visited by nearly 2,000 doctors a year, helping to train doctors in the region in techniques to treat diseases and use of St. Jude products. As St. Jude expands its presence in China, on top of a newly initiated dividend and a strong 2010, shares are worth a further look.

St. Jude Medical is headquartered in St. Paul, MN, and develops technologies and services to help doctors treat neurological, cardiac and chronic pain in patients. The company recently announced that the 2 millionth St. Jude heart valve implant had been used, proving the reliability and widespread use of the brand. For 2010, St. Jude reported $5.165 billion in revenue, an increase of 10% over 2009. The company focuses on four key segments, the largest of which is Cardiac Rhythm Management, which includes defibrillators and pacemakers, which had sales of $3.04 billion in 2010, up 10% when currency fluctuations are stripped out. Atrial Fibrillation sales for 2010 were up 12% excluding currency impact, to $708 million. Neuromodulation sales, which include implantable pulse generators to combat chronic pain, were up 15% in 2010 to $380 million, and Cardiovascular sales, which include heart valves, were $1.037 billion, up 8% year over year. St. Jude reported earnings of $907 million for 2010, which equates to $2.75 a share. It expects EPS to increase to $3.25-$3.30 for 2011, which implies EPS growth of 19% at the midpoint of the range.

On February 28th, St Jude initiated a quarterly dividend of $0.21 per share. The payout is easily covered by earnings, and based on $0.84 cents being paid per year, and a share price of $51, STJ yields 1.6%.

The opening of the facility in Beijing expands on St Jude's presence in the country, as it already has sales offices in Beijing, Guangzhou and Shanghai, as well as a distribution center in Shanghai. The facility allows doctors to train using St. Jude's products and treatments through lectures, peer-to-peer education and virtual reality programs. By expanding a doctor's knowledge of St. Jude products, and abilities to diagnose and treat certain diseases, St. Jude is increasing potential demand for products as well as building its brand awareness in the region. As the middle class in China continues to expand, access to healthcare will continue to improve, leading to an increasing market for St. Jude's products. St. Jude is building several other of these facilities in the U.S., Japan, Malaysia and Costa Rica, in addition to the one already operating in Brussels.

Trading at a trailing P/E of 18.5 and a forward P/E of 15.7, shares of STJ look cheap. Sales should continue to grow as populations in the western world continue to age, and as populations in emerging markets gain access to better healthcare. The company's plan of building training centers around the world will help spread knowledge of the treatments and products St. Jude offers, as well as how to use the products in a safe and effective manner. The facility in China gives the company a particularly strong position in the country, and should provide the building blocks for decades of future growth in the region. Add to these growth prospects a new dividend, and investors are paid to hold the shares as growth prospects pan out. Even at new 52-week highs, shares of St. Jude Medical do not look expensive, and investors looking for a strong healthcare name with exposure to China should consider buying shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.