Medical device maker Guidant (NYSE:GDT) raised its 2004 earnings outlook yesterday and provided details about its drug-coated stent program in an analyst meeting. The company is racing to get its latest-generation stent to market.

Johnson & Johnson (NYSE:JNJ) has the only drug-coated stent approved for sale in the U.S. (though it recently hit a small snag), and Boston Scientific (NYSE:BSX), with partner Angiotech (NASDAQ:ANPI), is selling its Taxus stent in Europe, and awaiting Food and Drug Administration (FDA) review for U.S. sales. Guidant and Medtronic (NYSE:MDT) are substantially behind, with products expected to start review in 2004.

Drug-coated, as opposed to bare-metal stents, have been shown to drastically reduce re-clogging of arteries in patients. The market for the product is expected to balloon to $5 billion by 2005, more than doubling the market for uncoated stents, which sell for a fraction of the price.

Guidant expects to have its drug-coated stent on the European market in 2005 and in the U.S. by early 2006, consistent with earlier guidance, but still music to J&J and Boston Scientific shareholders' ears. Guidant's main hope for taking market share after launching a few years behind competitors lies in offering a better stent that, Guidant argues, will be coated with a drug that does not linger in the body.

Despite Guidant's slow start in drug-coated stents, the shares have nearly doubled this year on strong sales of defibrillators and new cardiovascular products, including treatments for abnormal heartbeats. The company increased 2004 guidance to $2.40 to $2.55 in earnings per share, significantly above the consensus estimate of $2.28 per share, on $3.75 billion to $3.95 billion in sales. Yet, 2004 guidance does not offer much of an increase over 2003's expected $2.39 in earnings on $3.7 billion in sales.

Looking ahead to 2005, the company projects 5% to 9% sales growth.

Guidant has a strong balance sheet and healthy free cash flow. At a new high of $56, the stock trades at 23 times this year's earnings estimate and about the same multiple to 2004 estimates. Given the lack of earnings growth anticipated in 2004, and modest sales growth expected for 2005, investors may want to wait for pullbacks before rushing to buy on today's momentum.

Also, keep in mind that products in trials are delayed more often than not. Guidant's stent-release guidance is most likely a best-case scenario.

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