The Zacks Analyst Blog Highlights: Medtronic, Edwards Lifesciences, Boston Scientific, St Jude Medical and Southwest Airlines

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Feb 03, 2012, 09:30 ET

CHICAGO, Feb. 3, 2012 /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 Medtronic (NYSE: MDT), Edwards Lifesciences (NYSE: EW), Boston Scientific (NYSE: BSX), St Jude Medical (NYSE: STJ) and Southwest Airlines Co. (NYSE: LUV).

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Here are highlights from Thursday's Analyst Blog:

Positive Outcome on Medtronic's CoreValve

Leading medical device player Medtronic (NYSE: MDT) recently came out with the results of two studies conducted on the company's CoreValve System delivered through the direct aortic implantation approach. The data demonstrated at the 48^th Annual Meeting of the Society of Thoracic Surgeons (STS) showed positive result from this kind of implantation.

Earlier, in November 2011, CoreValve System with direct aortic implantation approach got the CE (Conformité Européenne) Mark approval. This direct aortic approach has also been assessed in the CoreValve US Pivotal Trial of Medtronic.

Data in this regard showed procedural success in 92 of 93 patients treated at 12 centers across Europe. The overall 30-day mortality rate stood at 9.7%. Among the patients, 83.9% were initially detected with peripheral vascular disease and almost one-third underwent previous coronary artery bypass surgery (indicating significant preoperative risk of mortality with standard surgery).

A separate study in Italy also illustrated positive outcome of implantation of the CoreValve System through the direct aortic approach. The data of 25 patients demonstrated 92% (23 of 25 patients) survival rate at 30 days. None of the patients experienced strokes and 4 patients were implanted with pacemakers post-procedurally. All of these patients had previously diagnosed peripheral vascular disease.

The CoreValve System is designed to replace diseased aortic valves without undergoing an open-heart surgery. Globally, approximately 300,000 people have been diagnosed with this condition and roughly one-third of these patients are deemed at too high a risk for open-heart surgery. This system is available in three sizes (26mm, 29mm and 31mm), and is the only transcatheter aortic valve implantation (TAVI) system approved for direct aortic implantation.

Although CoreValve is already approved in Europe since 2007, Medtronic is working on getting the US approval for the device. Earlier this month, the company completed the enrollment in the extreme risk category of patients for its CoreValve US Pivotal Trial.

During the most recent quarter, the company experienced robust growth in the Structural Heart portfolio, driven by strong adoption of CoreValve in the international markets. The company is witnessing strong early adoption of the 31mm CoreValve that received CE Mark approval in July and anticipates CE Mark approval for the 23 mm CoreValve in the second half of fiscal 2012.

Recommendation

We are impressed with Medtronic's continuous efforts to achieve the US approval for CoreValve and expect its further contribution in the international business as well. A pivotal trial for CoreValve began in Japan earlier in November.

In October, CoreValve received approval in Korea and the company is further working to get the device approved in several countries including the US, Thailand, Singapore, China, Hong Kong and Taiwan. However, Edwards Lifesciences (NYSE: EW) has the first mover advantage in US with FDA approval of Sapien clinched in November last year.

Medtronic reported weaker sales from its two largest segments – defibrillators and spinal implants. The challenges witnessed in the US ICD market have also been felt across the board and impacted Medtronic's competitors, Boston Scientific (NYSE: BSX) and St Jude Medical (NYSE: STJ).

To overcome these challenges, Medtronic is leaving no stones unturned to revive growth. This includes penetration of international markets, portfolio expansion, focus on high-potential segments and restructuring initiatives. These should benefit the company over the long term.

Medtronic currently retains a Zacks #3 Rank (short-term Hold rating). We also maintain our long-term Neutral recommendation on the stock.

Earnings Scorecard: LUV

The largest U.S. low-cost carrier Southwest Airlines Co. (NYSE: LUV) saw the thirty ninth year of profit in fiscal 2011, as announced on January 19, amid rising fuel prices and economic uncertainties.

Fourth Quarter & Fiscal 2011 Review

Southwest Airlines reported fourth quarter adjusted earnings of 9 cents per share beating the Zacks Consensus Estimate by a couple of cents. The quarter's earnings, however, dropped 40% from the year-ago quarter. For fiscal 2011, adjusted earnings declined 41.9% year over year.

Total revenue improved substantially both in the fourth quarter and fiscal 2011. Continued growth in the All-New Rapid Rewards program, EarlyBird check-in, unaccompanied minor travel and pet fees led to the healthy performance. Airlines traffic showed an impressive growth with strong increases in capacity.

Escalating fuel prices took operating expenses higher for the last year. Unit cost (cost per available seat mile) excluding fuel and special items, dipped slightly in the fourth quarter while remained stable for the full year.

(Read our full coverage on this earnings report: Southwest Beats on Strong Top Line)

Guidance

For the first quarter of 2012, management expects passenger revenue to continue to improve and unit costs to increase compared to the year-ago quarter. Fuel costs, including fuel taxes are estimated at approximately $3.35 per gallon.

Further, Southwest expects to exit fiscal 2012 with a fleet of 691 aircraft and projects capital expenditure of $1.3 billion.

Agreement of Analysts

Following the fourth quarter earnings release, the analysts are skewed toward the negative side in estimate revisions for the upcoming quarter. Out of 10 analysts, 3 revised their estimates downward over the last 30 days while none made a positive revision. None of the analysts moved in either direction over the last 7 days.

The movements of estimates for the next two fiscal years were on the positive side. For fiscal 2012, 5 analysts out of 14 made upward revisions over the last 30 days while 3 moved downward. Only 1 analyst out of 8 raised the estimate over the last 30 days for fiscal 2013 while none moved in the opposite direction.

None of the analysts moved in either direction over the last 7 days for the two fiscal years.

Although Southwest is poised to benefit from fleet rightsizing, Evolve retrofit program, steady capacity growth and several ancillary revenues, the analysts are mainly concerned with high maintenance and operating costs associated with fleet rightsizing and modernization.

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