The Zacks Analyst Blog Highlights: Amerisafe, Stryker, St. Jude Medical, CareFusion and Covidien

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Mar 14, 2013, 09:30 ET

CHICAGO, March 14, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Amerisafe Inc. (Nasdaq:AMSF), Stryker Corp. (NYSE:SYK), St. Jude Medical (NYSE:STJ), CareFusion (NYSE:CFN) and Covidien (NYSE:COV).

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Here are highlights from Wednesday's Analyst Blog:

Amerisafe Upped to Outperform

On Mar 12, we upgraded our recommendation on Amerisafe Inc. (Nasdaq:AMSF) to Outperform based on the remarkable improvement in its operating and underwriting performance.

Why the Upgrade?

Amerisafe reported fourth-quarter 2012 operating earnings per share of 49 cents on Feb 27, which outpaced the Zacks Consensus Estimate of 39 cents and the prior-year quarter's earnings of 32 cents. Total operating revenue also increased 14.3% year over year to $85.6 billion and also exceeded the Zacks Consensus Estimate of $83.0 billion.

Amerisafe witnessed quite a boost over the last 30 days, signifying noticeable growth ahead. The Zacks Consensus Estimate for 2013 rose 6% to $1.95 per share, whereas for 2014, it grew 5.7% to $2.22 per share. Meanwhile, the Most Accurate Estimate for Amerisafe's 2013 earnings stands at $2.10, resulting in a positive ESP (read: Zacks Earnings ESP: A Better Method) of 7.7%.

Consequently, with the Zacks Consensus Estimates for both 2013 and 2014 showing strong upward pressure on the stock in the near term, the company now has a Zacks Rank #1 (Strong Buy).

What is the cause for the strong positive bias on the company? Apart from strong fourth quarter results, Amerisafe has employed a proactive and disciplined underwriting approach. Additionally, prudent capital management have contributed to the favorable growth of book value per share and return on equity, which are significant growth measures. The initiation of cash dividend further injects shareholders' confidence in the stock.

Going ahead, we believe that Amerisafe is well positioned to capitalize on the changing market dynamics, wherein the workers' compensation market remains firm as carriers re-evaluate their positions, thereby enhancing the company's fundamental growth. A strong financial strength rating further augurs decent long-term growth.

Stryker Gets Warning Letter from FDA

Orthopedic major, Stryker Corp. (NYSE:SYK) has received a warning letter from the Food and Drug Administration ("FDA") following an inspection at its Portage facility at Mich. Products from Stryker's Instruments division are produced at the facility.

The warning was issued due to a quality systems-related issue at the facility as well as the marketing of unapproved medical devices, including the Neptune Waste Management system.

In Jun 2012, Stryker started a Class 1 recall of its Neptune system due to severe injuries caused by the device. One of the injuries resulted in fatality. The Neptune system collects surgical waste fluids as well as evacuates smoke with minimal human interference during clinical procedures.

Stryker is being warned by the regulatory body for marketing its products without proper regulatory approval and failing to inform the FDA regarding the product recall. However, the letter also acknowledges the fact that the company is working hard to resolve the issue.

Revenues from Instruments sales increased 3.5% to $330 million in the fourth quarter of 2012. Solid sales of power tools were negated by the Neptune product recall, which lowered revenues by $18 million in the quarter.

Despite the warning letter, Stryker hit a new 52-week high on Tuesday. Given Stryker's leading position in the medical technologies market, the warning letter from the FDA failed to affect stock prices, which remained roughly flat to close at $66.79 on Tuesday.

St. Jude Medical (NYSE:STJ), another medical device company, has also received a warning letter from the FDA regarding a breach of manufacturing practices at the company's Sylmar, Calif. plant. The plant manufactures implantable cardiac defibrillators (ICD) (including the highly controversial Riata ST Optim and Durata leads) from the company's Implantable Electronic Systems Division.

Stryker currently has a Zacks Rank #3 (Hold). Medical products companies such as CareFusion (NYSE:CFN) and Covidien (NYSE:COV), which carry a Zacks Rank #2 (Buy), appear impressive.

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