Boston Scientific vs. St. Jude: Is Either Stock Worth a Buy?


You wouldn't know that medical device makers Boston Scientific and St. Jude Medical are having a tough time by checking out their stock charts alone. Boston Scientific's hovering near a 52-week high after pulling in gains of nearly 28% to start 2013; St. Jude has also done well, racking up more than 17% year-to-date. But short-term gains can be deceiving, and both companies' recent financial struggles have kept investors awake at night.

There's always hope for beaten-down companies looking to turn things around, however. Today, we pit Boston Scientific and St. Jude head-to-head to see which company -- if either -- is worth your investment.

Boston Scientific: Escaping the CRM market
It's no secret that Boston Scientific's been struggling financially lately. The company's revenue fell nearly 5% year-over-year in 2012, although it did manage to slow its decline in its most recent quarter. The company's top two divisions by sales, Interventional Cardiology and Cardiac Rhythm Management (CRM), have led things lower.

The CRM market's stagnation has crushed every company involved, from Boston Scientific to the largest companies in the medical device market, such as rival Medtronic . Boston Scientific's taken a particularly tough blow, however: While Medtronic's CRM sales have only lost 3% over the past nine months, Boston's took a crushing 7% blow in 2012. The company needs to move away from this field in the future in order to succeed, as the CRM market has already matured in advanced economies and won't see much future growth for a while.

Unfortunately, CRM sales make up 26% of Boston Scientific's total revenue right now. Interventional Cardiology sales, which fell more than 14% last year, make up another 30% of the total; in all, Boston Scientific's exposed to revenue black holes for more than half of its sales. That won't impress growth investors.

However, the company has been making small but important steps to diversify into higher-growth fields. Boston Scientific's inroads into the stent market should appeal to long-term investor. Stents have become a promising field, and Boston Scientific's Promus line has ranked among the top-selling drug-eluting stents alongside Medtronic's Resolute and the clear market leader in Abbott's Xience. Boston Scientific also has a next-generation bioabsorbable stent in development, the Synergy, which has already received CE Mark approval. It's not quite as revolutionary as Abbott's next-gen fully dissolving Absorb stent, but it's enough to ensure Boston's competitiveness in the industry going forward.

The company's neuromodulation unit has also shown impressive growth despite its small size -- it only makes up around 5% of the company's total sales -- but are these glimmers of hope enough to beat St. Jude?

St. Jude: Beating back the woes
St. Jude isn't immune to the CRM market's woes; if anything it's in an even worse position than Boston Scientific. Nearly 52% of the company's total sales came from its CRM business in 2012, and with sales falling 6%, that's not a statistic that will inspire confidence in investors' hearts.

The company's gotten into legal hot water over its defibrillator leads recently. Many have raised concerns over the company's Durata leads after the FDA warned St. Jude about its concerns over the devices, suspecting that it could recall them if problems persist. St. Jude promoted the Durata as the replacement to the recalled Riata leads, making this an unsettling trend at the company.

For its part, St. Jude has done its best to develop promising products for the future that don't rely on the flat-lining CRM market. The company recently launched a safety and efficacy trial for its Amplatzer heart plug, a device that won CE Mark approval in 2008 that's designed to capitalize on the lucrative atrial fibrillation market. A U.S. approval for the Amplatzer would greatly help St. Jude's fortunes.

Investors need to keep a sharp eye on St. Jude's EnligHTNment trial, however. The study uses the company's EnligHTN renal denervation system -- already a strong product for St. Jude in a hot market -- as it attempts to determine if renal denervation products can help against other hypertension-related ailments, such as heart attack and stroke. If it's successful, it'll be a major victory for St. Jude and the renal denervation field as a whole.

St. Jude also boasts a growing neuromodulation business of its own along with its recently released Ilumien Optis stent imaging technology, but until this company manages to reduce its dependence on CRM and cardiovascular sales, it'll struggle to push back against a stagnant market.

A tale of two tough stocks
Both companies are struggling with the CRM market and other heart-related issues, but which one's future looks the brightest?

St. Jude offers a dividend where Boston Scientific doesn't, so score one for income investors. While the company's made good moves toward diversifying with its renal denervation and atrial fibrillation products among others, I'm still skeptical as to St. Jude's plan for growing and overcoming the CRM market's decline that has taken a toll on its sales. That's all hoping the company's mess with its defibrillator leads doesn't grow worse -- a sticky situation if there ever was one.

Boston Scientific's in a tough spot with CRM and interventional cardiology sales as well, but if the company can continue growing its presence in the hot stent market, it'll have a foundation of growth to rely upon for the future. It's not enough to turn around Boston Scientific completely, but it is a step forward for a company in need of optimism.

I wouldn't recommend either stock to all but the most optimistic investors - there are just too many hurdles for each company to beat back before investors can feel confident in their safe and solid long-term futures. Between the two, Boston Scientific's path to respectability looks shorter, but if you take a gamble on either stock, use caution and keep an eye out for bumps in the road.

On top of the medical device industry
Abbott is one of Boston Scientific's top competitors in the stent industry, and its Absorb stent follows up on the tremendous success of the Xience. Is Abbott a good pick for investors -- especially after it split off its former pharmaceuticals division into new company AbbVie? To help investors better understand the situation, The Fool has created a brand new premium report on both stocks. Inside, we outline all of the must-know opportunities and risks facing both companies, so make sure to claim this report by clicking here now.

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Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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