Is St. Jude Next to Be Wooed?

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Once again we see a harsh lesson repeated in the market -- if a stock runs up too much, investors get really cranky about any perceived disappointments. Take the case of St. Jude Medical (NYSE: STJ) -- the stock is off about 5% this morning, mostly because it didn't fulfill analyst expectations for ICD sales and offered a slightly more conservative view of future market growth.

All in all, though, results weren't bad. Sales were up 29% and earnings per share, after various sundry charges, were up about 24%. Sales growth was once again fueled by the red-hot ICD business where sales climbed 62% -- although that probably sounds good to most readers, it was actually a little light compared to analyst expectations. Growth was also strong in the atrial fibrillation business (a much smaller market) and up by single-digit amounts in cardiology and cardiac surgery.

I believe part of the lurking fear here is that St. Jude may find itself in the same boat as Boston Scientific (NYSE: BSX) -- namely, what do you do about growth for the long haul when your growth currently comes from just one business? In the case of Boston Scientific, we've all seen their solution -- paying a whole lotta money to acquire Guidant (NYSE: GDT), the company whose troubles have directly led to St. Jude's growth.

In the case of St. Jude, I believe that a fair portion of its growth came from supplanting Guidant as the back-up supplier to many medical facilities. When Guidant started having its troubles, customers were faced with the choice of giving all of their business to Medtronic (NYSE: MDT), or replacing some (or all) of their Guidant business with St. Jude. So the question going into 2006 is this: Can St. Jude build upon that jump-start opportunity from Guidant's troubles, or will further market share growth prove to be increasingly hard to come by?

With Guidant apparently going to Boston Scientific, I would hope that Johnson & Johnson might at least consider St. Jude as a candidate. Not only is this a player in the ICD/pacemaker market, but I'm optimistic about the company's future in atrial fibrillation and neurostimulation. I'll grant that buying St. Jude won't be cheap, but take a quick look at J&J's growth rates and tell me that it doesn't need to do something.

For more medical-minded Foolishness:

• Shake a Leg, J&J!
• High-Stakes Medical Device Chicken
• A Busy Day for St. Jude

Fool contributor Stephen Simpson owns shares of Johnson & Johnson, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares).