NEW YORK (TheStreet) -- Muddy Waters revealed a short position in St. Jude Medical (STJ) on Thursday, because the medical device company's "Merlin@Home" remote monitoring platform is less secure than those used by competitors due to a lack of encryption and authentication, according to the firm's report.
"St. Jude's business faces some significant risk of recall for an extended period of time," Muddy Waters founder Carson Block told CNBC's "Closing Bell" on Friday.
Abbott Laboratories (ABT), which had a proposed merger with St. Jude and any other potential investors should realize that, he noted.
"From a long perspective I wouldn't be paying these prices to go along with a company that is facing these real risks of losing close to half its revenue for two, plus years potentially," he explained.
The firm went public with the report because St. Jude had been continually warned about the cyber-security vulnerabilities in the ecosystem, Block said.
"We see this as a company that for a number of years with these devices has been putting profits before patients," he said, adding that the company "doesn't deserve a third, fourth chance to sweep that under the rug."
When the potential issue was first brought to his attention, he didn't think Muddy Waters had the resources to investigate it, Block said. However, because "the holes are so big and the security flaws are so basic," the firm was able to do due diligence with the investigation.
St. Jude will eventually be held as "grossly negligent," Block predicted.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
TheStreet Ratings team rates St. Jude Medical as a Buy with a ratings score of A-. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that the company rates.
You can view the full analysis from the report here: STJ