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Don't Overlook Problems at St. Jude

Stocks in this article: STJ JNJ MDT ABT SYK

NEW YORK (TheStreet) -- Say what you want about Wall Street's "unpredictability," but when investors' minds are made up about a company, there's often little that can change that sentiment. It goes both ways. If you're on the Street's good side -- like St. Jude Medical (STJ) appears to be -- it's a great position to be in. Or is it?

While St. Jude has enjoyed years of solid performances in the medical devices industry against rivals like Johnson & Johnson (JNJ) and Medtronic (MDT), its execution has been anything but flawless. St. Jude's Riata and Durata leads, made to help prevent heart failures, have been failing, thus hurting the company's reputation.

These at-home leads should help carry electrical impulses to the heart and provide information from the heart back to the devices. However, overwhelming reports of malfunctions due to premature insulation failure not only resulted in product recalls, but also generated class-action claims.

Making the situation even more dreadful, the company is now operating under several written warnings from the Food and Drug Administration. On top of that, there are now worries about the company's product pipeline, which lacks the growth potential of Medtronic.

Despite constant streams of negative news, the stock is perched near its 52-week high, which suggests Wall Street cares very little about these details and has made up its mind. While this is bad news for the bears, which have waited for a better entry point on the stock, the bulls shouldn't count their chicks just yet, either.

It's true the company beat third-quarter revenue estimates. In fairness, I was impressed by St. Jude going toe-to-toe with Johnson & Johnson, especially in areas like atrial fibrillation, which posted a solid 10% (constant currency) year-over-year growth. That St. Jude missed Johnson & Johnson's mark by only 1% shows the potential there is in this business.

However, considering the gloomy picture I've just outlined, I don't believe St. Jude's overall revenue performance, which grew just 1% year-over-year, supports the optimistic outlook reflected in the stock price.

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