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Will St. Jude Medical (STJ) Disappoint this Earnings Season?

St. Jude Medical Inc. (STJ) is slated to report its third-quarter 2014 results before the opening bell on Oct 15. In the last reported quarter, St. Jude Medical recorded a positive earnings surprise of 2.0%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

St. Jude Medical has recently been seeking expansion via strategic acquisitions. Of late, it completed the acquisition of privately-held chronic pain solutions maker NeuroTherm which is expected to boost revenues at its Neuromodulation segment. The acquisition is expected to be neutral to St. Jude Medical’s earnings per share in 2014 but accretive thereafter. St. Jude Medical also completed the takeover of privately-held CardioMEMS, Inc. which is anticipated to accelerate growth in its cardiovascular segment.

However, St. Jude Medical faces margin pressures primarily owing to integration-related costs and excise taxes. Additionally, St. Jude Medical’s long-term debt, standing at $4,206 million as of Jun 28, 2014, also puts significant interest burden on the company. Sluggish capital spending environment in the healthcare sector also adds to the woes.

Earnings Whispers

The soon-to-be-reported quarter has witnessed three downward estimate revisions in the last 30 days without any upward revision. However, the Zacks Consensus Estimate for the third quarter has remained unchanged over the same time frame. For the current year, four estimates have moved south in the last one month, causing the Zacks Consensus Estimate to shrink 0.3% to $3.99 per share.

Furthermore, our proven model does not conclusively show that St. Jude Medical is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -1.04%. This is because the Most Accurate estimate of 95 cents is below the Zacks Consensus Estimate of 96 cents.

Zacks Rank: St. Jude Medical currently holds a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:

Abaxis, Inc. (ABAX) with an earnings ESP of 4.55% and a Zacks Rank #2 (Buy).

CareFusion Corporation (CFN) with an earnings ESP of 4.17% and a Zacks Rank #3 (Hold).

Heartware International Inc. (HTWR) with an earnings ESP of 21.21% and a Zacks Rank #3 (Hold).

Read the Full Research Report on STJ
Read the Full Research Report on CFN
Read the Full Research Report on ABAX
Read the Full Research Report on HTWR

Zacks Investment Research