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Stock Picks Bob's Advice
Wednesday, 20 April 2005
"Revisiting My First (!) Stock Pick" St Jude Medical (STJ)
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please consult with your professional investment advisors prior to making any decisions based on information on this website! I cannot be responsible for any losses you incur and I shall not try to take any interest in any gains you might accrue.

This website is now almost two years ago. I have literally hundreds of posts on Stock Picks, and it is often hard just trying to keep up with them! My very first post on Stock Picks was St Jude (STJ) which I posted at $55.30 on 5/12/03. STJ underwent a 2:1 split on 11/23/04, making my effective "pick price" actually $27.65. I currently own 240 shares of STJ in my "Trading Portfolio" that I purchased 10/15/03 at a cost basis of $28.90/share.

St Jude Medical (STJ) had a great day in an otherwise lackluster market, closing at $39.67, up $3.41 or 9.40% on the day! What pushed the stock higher today was the 1st quarter 2005 earnings report. STJ reported that sales jumped 21% to $663.9 million from $548.6 million. ($15 million was due to currency exchange effects). Earnings rose to $119.4 million or $.32/share up from $95.2 million, or $.26/share last year. The company also provided positive guidance for the second quarter, with $.35-$.37/share in earnings, ahead of analysts expectations of $.34/share for the upcoming quarter. With a great earnings report, and with raised guidance, the stock bucked the overall downward trend in the market today and moved sharply higher.

By the way, STJ, according to the Yahoo "Profile" on St Jude, "...develops, manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management (CRM), cardiac surgery (CS), and cardiology and vascular access (C/VA) therapy areas." They make pacemakers, and lately have been very successful marketing implantable cardioverter defibrillator (ICD) systems.

How about longer-term? For this, we can recheck the Morningstar.com "5-Yr Restated" financials. Here we can see that revenue continues to grow steadily from $1.1 billion in 1999 to $2.2 billion in the trailing twelve months (TTM). Earnings have grown also steadily from $.07/share in 1999 to $1.03/share in the TTM.

Free cash flow has also been improving with $247 million reported in 2001, improving each year to $446 million in the TTM. The balance sheet is solid with $585.2 million in cash and $1.1 billion in other current assets, plenty to cover both the $553.7 million in current liabilities and the $360.2 million in long-term liabilities.

What about "valuation"? For this, I have been turning once again to Yahoo "Key Statistics".

Here we can see that this is a large cap stock with a market capitalization of $14.32 billion. The trailing p/e is a bit rich at 35.90, but the forward p/e (fye 31-Dec-06) is a bit better at 24.34. The PEG is a bit rich at 1.57, and the Price/Sales is even steeper at 5.71.

As Paul Sturm has written in SmartMoney.com, the improtance of a Price/Sales ratio is not its absolute value, but instead, the relative value compared to other companies in the same industry. Using my Fidelity account for research, I found that STJ was a bit on the high end at 5.7. However, only Edwards Lifesciences (EW) was significantly lower at 2.7, otherwise, Biomet (BMET) came in at 5.3, Medtronics (MDT) was higher at 6.2, and Zimmer (ZMH)was the steepest in price/sales ratio at 6.4. Thus the 5.7 of STJ is actually in the middle of the "pack" of stocks in this Medical Appliances/equipment industry.

Yahoo also shows that there are 361.06 million shares outstanding, 356.30 million of them floating with 2.76 million shares out short. These short shares represent 0.78% of the float or 1.869 trading days of volume. This doesn't look too significant to me.

No cash dividends are reported, and as I noted earlier on this post, the last stock split was a 2:1 split on 11/23/04.

How about "technicals"? In other words, how does the chart look?


The chart actually looks quite strong with a steady upward move between January, 2000 and June, 2002, when the stock appreciated from $6/share to a peack of $22 in May, 2002. However the stock then consolidated, trading between the $16 and $21 level between May, 2002 and October, 2002, when it once again broke out to the current $39.67 level now. In other words, the chart looks excellent! (imho).

So what do I think overall? Well, I like it enough to own the stock. But seriously, the latest quarter was superb and the company is raising estimates for the upcoming quarter. The past five years have seen an extremely impressive record of consistent earnings and revenue growth, the valuation isn't bad, although it isn't cheap at all, and the chart looks solid! Too bad the rest of the stocks have been so weak :(.

Thanks again for stopping by and visiting. If you have any questions, comments, or words of encouragement, please feel free to email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 10:24 PM CDT | Post Comment | Permalink

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