For St. Jude Medical Inc. (NYSE:STJ), last year’s blessing may be this year’s curse.
The medical device maker, based in Little Canada, Minn., enjoyed a stellar 2010, mostly due to impressive growth in its pacemaker and implantable cardioverter defibrillator business.
But the party may soon be over. Morgan Stanley downgraded St. Jude stock to “underweight” — read “sell” — citing a weak ICD/pacemaker market, pricing pressures and increased competition from Medtronic Inc. (NYSE:MDT) and Boston Scientific Corp. (NYSE:BSX).
In a research report, Morgan Stanley analyst David Lewis wrote that St. Jude faces significant big- and small-picture challenges.
First, the most daunting problem: Lewis expects the cardiac rhythm management market in the U.S. to slow to zero growth and even fall 2 percent by 2013, as hospitals demand steep price cuts.
As a result, he estimates St. Jude, which depends heavily on its CRM business, will generate just a 4 percent organic sales increase this year, compared to 11 percent just three years ago.
And Lewis doesn’t think St. Jude has the financial strength to buy growth.
“Despite a strong balance sheet and cash flow profile, St. Jude does not have the financial capacity to solve its exposure to the CRM market through acquisitions,” he wrote.
To make matters worse, St. Jude will have plenty of competition for its slice of the shrinking CRM pie. Last year the company racked up sales growth through a slew of new product introductions. But with Boston Scientific and Medtronic about to launch new ICDs and pacemakers, St. Jude will find itself on the defensive, according to Lewis.
STJ was down 37 cents to $42.39 in late-afternoon trading.
