Zacks Analyst Blog Highlights: Boston Scientific, Medtronic, St. Jude, Abbott Laboratories and Covidien

News provided by

Mar 15, 2011, 09:30 ET

CHICAGO, March 15, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Boston Scientific (NYSE: BSX), Medtronic (NYSE: MDT), St. Jude (NYSE: STJ), Abbott Laboratories (NYSE: ABT) and Covidien (NYSE: COV).

(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Monday's Analyst Blog:

Japan Quake Impact on MedTech

Tremors triggering a quake, which struck about 250 miles north of Tokyo, followed by a colossal Tsunami, wreaked havoc on the people of the "Land of the Rising Sun" on March 11, resulting in massive carnage and destruction.

The catastrophe, which is believed to have already claimed at least 10,000 lives (mostly in the northern port of Sendai) with tens of thousands still missing, has entered the book as the largest ever in the island nation's recorded history.

Japan in Dire Straits

While the human casualty is enormous, the calamity has struck a major blow to the nation's ailing economy. The Japanese economy is forecast to slow down in 2011 (projected GDP growth of 1.3% versus 3.9% in 2010) as political instability continues to weigh on the country's economic prospects.

Moreover, following the violent quake, it might become difficult for the Japanese government to curb its galloping budget deficit and massive debt (at roughly 200% of GDP!), as the money will mostly flow on rebuilding initiatives, considering the scale of damage brought about by the killer Tsunami. As such, at this moment Japan is in double jeopardy.

Although the Japanese government is grappling with the mammoth rebuilding task, including steps to ease the monetary policy and a hefty emergency funding of roughly $184 billion from the country's central bank, much is left to be done. The Tokyo stock market crashed on March 14, the first trading day following the Friday's temblor, on looming concern over the economic impact of the debacle. Darkness has fallen on the rising sun.

MedTech Perspective

As the nightmare continues to haunt the Japanese people and the nation's attempt to recover from the "Friday Fury," its impact on the medical devices industry may conceivably be substantial. Japan, the third-largest economy in the world, is the second-largest medical devices market after the U.S. It accounts for roughly 45% of the medical devices industry in the Asia-Pacific.

The aging population represents a major catalyst for demand of medical devices in Japan. The rising elderly population (persons 65 years and above), local manufacturing constraints and increased incidence lifestyle diseases including cardiovascular diseases, diabetes and hypertension trigger the need for advanced medical technology from the west.

The roughly $25 billion Japanese medical devices sector has been an extremely successful market for American medical devices firms. U.S. firms account for roughly 60% of all imported medical devices products in Japan. Traditionally, the U.S. has consistently enjoyed a sizable trade surplus in the Japanese medical devices sector.

The largest exporters include medical devices heavyweights such as Boston Scientific (NYSE: BSX) and Medtronic (NYSE: MDT). These firms continue to discern opportunities in leading edge medical products including pacemakers, stents, orthopedic implants, catheters and diagnostic imaging equipment.

While the market for U.S. medical devices remains healthy in Japan, the U.S. firms have been facing both pricing and regulatory headwinds. The Japanese government regulates medical devices under the Pharmaceutical Affairs Law ("PAL") through the Ministry of Health, Labor and Welfare ("MHLW").

A more stringent regulatory environment coupled with implementation of cost containment measures and healthcare reforms (resulting in lower price and/or reimbursement cuts) has added a degree of uncertainty for the overseas firms.

U.S. MedTech giants such as Medtronic, Boston Scientific and St. Jude (NYSE: STJ) have major exposure to the Japanese medical devices sector. Other key players such as Abbott Laboratories (NYSE: ABT) and Covidien (NYSE: COV) have established a foothold in this lucrative market. Many of these players derive sizable revenues from their Japanese operation.

In an effort to solidify its presence in Japan, Boston Scientific recently struck a deal with Japanese distributor Fukuda Denshi to sell its cardiac rhythm management ("CRM") devices. The company, which booked revenues of $968 million from its Japan unit (located in Tokyo) in 2010, is expected to launch its new stent systems (PROMUS and TAXUS Element) in the country over the 2011-2012 timeframe.

As for MedTech kingpin Medtronic, Japan represents one of its three biggest medical devices markets. Likewise, St. Jude reckons Japan as one of its largest geographic market outside the U.S.

Abbott Labs, with just over $2 billion in sales derived from Japan in 2010, leads the country's drug eluting stent ("DES") market with its Xience V stent. Orthopedic devices giant Stryker stated that higher sales in Japan contributed to its hip, trauma and surgical equipment product sales growth in 2010.

Thus, it remains to be seen how long the impact of this horrific disaster on the struggling and debt ridden Japanese economy will last, which only time will tell. Nonetheless, the impact will likely be felt beyond the pulverized Japanese northeastern cost to a broad spectrum of industries (including medical devices) as it may lead to a disruption in the global supply chain with Japan being a crucial link.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5514.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5516

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.