Patent Foramen Ovale (PFO) and Left Atrial Appendage Closure Devices and Transcatheter Aortic Valve Replacement Product Should Push This Medical Device Stock Higher According to BMO Capital Markets

Wall Street Transcript

67 WALL STREET, New York - August 16, 2012 - The Wall Street Transcript has just published its Medical Devices Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Chinese Low Penetration Rate - Innovation Counters Pricing Pressure - Orthopedics and Cardiovascular Medical Devices - Medtech Tax Affects Earnings

Companies include: The Cooper Companies Inc. (COO), Zimmer Holdings Inc. (ZMH), St. Jude Medical Inc. (STJ), Stryker Corp. (SYK), Medtronic, Inc. (MDT) and many others.

In the following excerpt from the Medical Devices Report, a top equity analyst discusses the outlook for the sector for investors.

TWST: In mid-2010, you downgraded a wide swath of the sector. This spring, you had five "outperforms" out of 19 names covered, and a "market perform" on the sector. Any changes there? Have things gotten better or worse?

Ms. Wuensch: I am slowly upgrading things. Right now, I have seven" outperforms." That's almost bullish. I still have a "market perform" rating on the sector, but clearly things are hitting inflection points in terms of price or increased confidence in the ability to deliver numbers.

TWST: Where are you pointing investors now? What are some of your favorite stories at the moment?

Ms. Wuensch: I'm pointing them to Zimmer (ZMH), for the recovering orthopedic marketplace. I'm pointing them to Cooper (COO), for the market-share gains in the contact lens market, which is largely recession-resistant. I'm pointing them to ArthroCare (ARTC), a sports medicine, ear, nose and throat company generating operating margins in the high teens, with strong cash flow generation. It's a potential pickup candidate.

TWST: In the spring, you were focused on the diversified names. Have you made a move toward smaller stocks?

Ms. Wuensch: I still think the diversified names are probably in the best position to benefit when all is said and done. But I'm expanding that. Cooper was trading as high as $89. It came down to the $77 level, and we upgraded that recently. Zimmer got through a decent first quarter. We started to see the better knee numbers in the marketplace, and we got more interested in that.

Look, the diversifieds are still the safest place, but certain other names are getting very interesting at this stage.

TWST: How about St. Jude Medical (STJ)? You're seeing some positives there despite the issues?

Ms. Wuensch: Next year, they're launching three new products - their Portico transcatheter heart valve, their left atrial appendage device and then a device for PFO closure. These are multi-billion-dollar market opportunities, so to the degree they get involved in these new markets - first in Europe, and then, ultimately in the United States - it bodes well for the company.

Plus, cardiac rhythm management is the core business, and we can debate whether it's flat, down 2% or even down 4%, but that's much better than the type of down high-single digit market we were witnessing last year. I would say that market's on the mend.

TWST: What's your rating on them?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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