The diverging fortunes of St. Jude Medical Inc. (NYSE:STJ) and Boston Scientific Corp. (NYSE:BSX) has made plenty of headlines lately.
And wall street analysts are saying the same thing. Let’s start with Little Canada, Minn.-based St. Jude.
The company has been on a nice run lately with impressive sales gains, successful product introductions and high profile acquisitions.
Tim Begany, a writer with independent stock guide StreetAuthority.com, says St. Jude is better equipped to weather the 10-year, $20 billion medical device tax that’s part of healthcare reform than competitors Medtronic Inc. (NYSE:MDT) and Boston Scientific.
Begany estimates the tax will lop off $113 million of St. Jude’s post-tax net income of $849 million — a 13 percent hair cut.
“That’s a nasty hit, but the bottom line would still be comparable to last year when the company booked net income of $777 million,” Begany writes. “It would still far outstrip 2005 through 2008’s net income of $393, $548, $559 and $384 million, respectively.”
St. Jude “can handily beat the market going forward,” he continued. “The consensus on Wall Street, which knows full well about the new sales tax, is for earnings growth averaging +12.8 percent annually for the next five years, compared with +9.9 percent and +9.0 percent, respectively” for Medtronic and Boston Scientific.
Motley Fool.com is not quite as bullish on Natick, Mass.-based Boston Scientific, but with major operations in Arden Hills, Minnesota. Based on a metric called Economic Value Added, the popular investing website says Boston Scientific is literally “destroying shareholder value.”
EVA indicates true economic profit by measuring a company’s operating profit against the cost of its working capital. If the former is larger than the latter, the company is generating positive EVA momentum and creating shareholder value. If the former is less than the latter, then a company’s EVA momentum becomes negative.
According to the website, Boston Scientific generated negative 1.8 percent EVA momentum in 2010, and 1.2 percent and 0.8 percent in each of the preceding two years. That ranks the company in the 11th industry percentile, compared other medical device makers.
By contrast, Stryker Corp. (NYSE:SYK), which recently agreed to buy Boston Scientific’s neurovascular business for $1.5 billion, generated a positive 2.3 percent EVA momentum this year, and a positive 0.2 percent and 2.2 percent in 2009 and 2008, respectively. That performance places it in the 64th industry percentile.
