St. Jude Medical, Inc. (STJ): A Discounted Medical Equipment Play

Alternatives: Becton Dickinson and Medtronic

Becton, Dickinson and Co. (NYSE:BDX) manufactures a wide variety of medical supplies and devices for use by healthcare providers, researchers, and the general public. The vast diversity of their product line is a huge advantage over St. Jude. Additionally, demand for most of their products (such as syringes, surgical tools, and diagnostic equipment) is not as volatile as that of cardiac products like St. Jude’s.

On the other hand, Becton, Dickinson and Co. (NYSE:BDX) is a much more expensive company at 17.5 times this year’s earnings, with a similar projected forward growth rate as St. Jude. The lower perceived risk does indeed warrant somewhat of a premium, but this is a pretty big difference.

Medtronic, Inc. (NYSE:MDT) has a very similar product line to St. Jude and is similarly valued. In fact, Medtronic, Inc. (NYSE:MDT)’s product lineup differs from St. Jude’s by the additional offerings of spinal products and diabetes products. However, with a slightly higher P/E of 13.8 times 2013’s earnings, I have to give the slight edge to St. Jude, which also pays a slightly higher (2.22% vs. 1.97%) dividend yield.

Conclusion

Although there is healthy demand for St. Jude Medical, Inc. (NYSE:STJ)’s products domestically, the overall market has softened for cardiac products internationally, particularly in Europe. However, I see this as a good opportunity to get into an industry leader at a significant discount, as the market for medical devices will only improve with the rising number of insured consumers and an aging population in the developed world.

The article A Discounted Medical Equipment Play originally appeared on Fool.com and is written by Matthew Frankel.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Becton Dickinson. The Motley Fool owns shares of Medtronic. Matthew is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.