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Medical devices major St. Jude Medical (NYSE:STJ) is scheduled to release its second-quarter fiscal 2011 results before the opening bell on Wednesday, July 20. In its first quarter commentary, the Minnesota-based company noted that it expects second quarter adjusted earnings per share of between 83 and 85 cents. The current Zacks Consensus Estimates for revenues and earnings for the quarter are $1,448 million and 84 cents a share, respectively.

With respect to earnings surprises, St. Jude has posted four positive surprises in the preceding four quarters and we expect this positive streak to continue in the second quarter. St. Jude has delivered an average positive earnings surprise of 4.50% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

First-Quarter Flashback

St. Jude’s first quarter adjusted earnings per share of 80 cents beat the Zacks Consensus Estimates by a couple of cents and surpassed the year-ago earnings of 75 cents. Profit, as reported, fell 2.2% year over year to $233 million (or 71 cents a share), hit by charges associated with the company’s acquisition of cardiac devices maker AGA Medical.

Revenues climbed 9% year over year to $1,376 million, buoyed by healthy growth across the company’s Cardiovascular, Atrial Fibrillation and Neuromodulation franchises. Sales matched the Zacks Consensus Estimate.

Revenues from St. Jude’s core Cardiac Rhythm Management (“CRM”) division edged up 1% year over year to $762 million as higher ICD sales were partly dampened by a soft Pacemaker business. St. Jude witnessed double-digit growth across its Atrial Fibrillation, Neuromodulation and Cardiovascular businesses. St. Jude has raised its earnings forecast for fiscal 2011.

Estimate Revisions Trend

Agreement

Estimates for the second quarter reflect a negative sentiment with 4 out of 27 analysts lowering their forecasts over the past week with none moving in the opposite direction. Over the past month, 6 analysts have pruned their estimates with no positive revisions, thereby manifesting a sheer directional agreement. The current Zacks Consensus Estimate (of 84 cents) represents an estimated 6.33% year-over-year growth.

For fiscal 2011, estimates are clearly inclined towards the negative side with 4 analysts (out of 31) having reduced their estimates over the last 7 days without any reverse movements. Over the past 30 days, 5 analysts have lowered their forecasts with a solitary upward revision.

Magnitude

Despite a number of negative movements, the magnitude of revisions for the second quarter has been static over the past week and month. However, estimate for fiscal 2011 has reduced by a penny over the past week and month. The current Zacks Consensus Estimate for fiscal 2011 is $3.30, representing an estimated year-over-year growth of 9.76%.

Neutral on St. Jude

St. Jude is producing consistent revenue growth over the past several quarters. The company is poised for incremental opportunities in CRM on the back of strong product momentum. St. Jude’s Fortify and Unify devices are already gaining notable traction. Moreover, launch of several products (including the quadripolar CRT systems) should boost the company’s CRM market share in 2011.

We remain encouraged by St. Jude’s ability to deliver consistent revenue and earnings growth and believe that its second quarter results will be supported by new products. Notably, the company’s Fortify and Unify devices should help it gain ICD share.

The European clearance of the Accent MRI pacemaker and the U.S. approval ShockGuard technology, designed for use with the Fortify and Unify systems, represents an incremental positive for the company. Also, St. Jude’s strategic investment in cardiac devices maker CardioMEMS represents another significant opportunity to boost its technologies focused on improving heart-failure management.

Another encouraging prospect is St. Jude’s April 2011 pact with health care supply contracting company Novation. Under the deal, Novation will make the company’s CRM products available to some of the leading academic centers in the U.S., which should broaden the use of St. Jude’s products and technologies and boost its market share.

The U.S. approval of two new irrigated ablation catheters (Safire BLU and Therapy Cool Path) for treating cardiac arrhythmias should help St. Jude sustain the healthy growth in Atrial Fibrillation through 2011. In Neuromodulation, the European approval for the DBS system in the migraine indication (expected in end-2011) and U.S. approval in Parkinson’s disease (expected in 2012), represent promising prospects.

On the Cardiovascular front, synergies of the AGA Medical acquisition should boost results in this division. Trifecta, which was launched in Europe in fourth-quarter 2010 and was approved in the U.S. in April 2011, represents a major new driver for this business.

However, St. Jude and its peers Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) are increasingly in a tussle to grab CRM share. Deceleration in the ICD market growth rate may weigh on the company’s CRM results in the second quarter. Also, a favorable foreign exchange impact on the company’s top line is expected to be somewhat offset by the Japan quake impact.

While we are impressed by St. Jude’s solid fundamentals, strong product mix, healthy growth trajectory and operating leverage, we remain wary about competition-driven pricing pressure and a soft CRM market. Our Neutral recommendation for the stock is supported by a Zacks #3 Rank (Hold).

Source: St. Jude Medical: Earnings Preview