VALUATION HIGHLIGHTS

1. Cardiovascular constitutes 43% of the Trefis price estimate for Boston Scientific's stock.
2. MedSurg constitutes 32% of the Trefis price estimate for Boston Scientific's stock.
3. Rhythm Management constitutes 25% of the Trefis price estimate for Boston Scientific's stock.

WHAT HAS CHANGED?

BSX Stock Performance

BSX stock has seen extremely strong gains of 85% from levels of $35 in early January 2021 to around $65 now (mid-February, 2024), vs. an increase of about 30% for the S&P 500 over this roughly 3-year period.

BSX is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn't enough for it to consistently beat the market. Returns for the stock were 18% in 2021, 9% in 2022, and 25% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that BSX underperformed the S&P in 2021.

Q4 2023 Performance

Boston Scientific's revenues rose 15% (y-o-y) to $3.7 billion in Q4 2023, with revenue growth seen across all segments. While the Cardiovascular segment saw a 13.9% rise in sales, MedSurg sales were up 11.1%. The adjusted EPS came in at $0.55, 22% higher than the $0.45 figure reported in the prior-year quarter.

Spree of Acquisitions

Boston Scientific announced 10 acquisitions over the recent years. The company has closed the acquisition of spine solutions maker Vertiflex for an upfront cash payment of $465 million, and also the BTG plc acquisition, which added $220 million to the company's top line in 2020. In June 2021, Boston Scientific acquired the remaining 73% stake in Farapulse Inc. for a $295 million upfront payment and possible $92 million in milestone payments. The company expects these acquisitions to aid its long-term growth.

Stock Price Movement

Boston Scientific's stock has been on a strong run. It saw around 35% growth in 2018, and it was up 29% in 2019. The company's earnings growth has aided the stock price movement over recent years. However, BSX stock declined 20% in 2020, given the impact of the pandemic on the company's business. It saw a further 6% fall in 2021. It outperformed the broader markets in 2022, rising 9% compared to a 19% decline in the S&P500 index. BSX stock is up 12% year-to-date as of early June 2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Boston Scientific's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:

Interventional Cardiology

• Boston Scientific's Cardiovascular Revenue: This is the most important division and the biggest source of revenue for Boston Scientific. As the company continues to innovate its drug-eluting stent technology (DES) and its Transcatheter Aortic Valve (TAVR) system, we expect the company to retain its market share over our forecast period.
  The Promus PREMIER stent has been gaining widespread acceptance. Meanwhile, the SYNERGY stent continues to perform strongly by representing more than 25% of the company's total European DES sales. Similarly, the product offerings of the company's structural heart business are expected to sustain its growing market share. The Lotus TAVR has been reporting impressive growth in the international market. Another product that could bolster revenue for the IC division is the Watchman device that received FDA approval in 2015. As the segment is the largest revenue contributor and constitutes more than 35% of our price estimate, even a small out-performance with respect to our expectations will have a huge impact on the company's valuation.

MedSurg

• Boston Scientific's MedSurg Revenue: This division is the second biggest revenue source for Boston Scientific. We forecast the company's market share to remain steady, resulting in moderate growth in revenue. The segment includes Women's Health, Urology, as well as the Endoscopy business. The segment revenues have been growing at a fast pace, and this trend is expected to continue in the coming years. Going ahead, if the company improves its market share significantly and the segment's revenue increases by an additional $2 billion by the end of our forecast period, there can be more than a 15% upside to our price estimate.

BUSINESS SUMMARY

Founded in 1979, The Boston Scientific Corporation develops, manufactures, and supplies medical devices across the world. These devices are primarily sold in the following areas of medicine - Interventional Cardiology, Cardiac Rhythm Management, Endoscopy, Peripheral Interventions, Urology/Women's Health, Neuromodulation, and Electrophysiology. The company's largest sources of revenue are sales of Interventional Cardiology and Cardiac Rhythm Management devices.

Boston Scientific supplies its devices in around 125 countries around the world, mainly the U.S., Europe, the Middle East, Japan, Canada, China, India, and Brazil. The company historically has been very acquisitive in order to strategically expand its operations and sales.

Its main competitors are Johnson & Johnson, Medtronic, and Abbott.

SOURCES OF VALUE

Interventional Cardiology, Endoscopy, and Cardiac Rhythm Management are the major sources of revenue for the company. Here's why:

Continuous innovation and product improvement

Coronary stents are implantable tubes that help in opening blocked arteries and ensuring smooth blood flow. These are the largest revenue driver for Boston Scientific as it is the only company in the world to provide a two-drug platform. The company keeps launching improved versions of these stents to maintain its market leadership position. Following the same trend, the company launched Promus PREMIER Element, an improved version of its drug-eluting stent (DES) technology in 2013 along with the next-generation line of defibrillators and pacemakers. Continuous innovation and product improvement should allow Boston Scientific to maintain a healthy market share and increase its revenue base from the division, in our view.

Acquisitions to capture more market share

Acquisitions have always been an integral part of Boston Scientific's growth strategy. In 2011, the company acquired Sadra Medical and Atritech in order to increase the market share of its respective structural heart therapy and atrial fibrillation businesses, which fall in the Interventional Cardiology division. It also acquired Cameron Health which has strengthened the sales of its Cardiac Rhythm Management business.

KEY TRENDS

Impact of Covid-19 Pandemic

The Covid-19 pandemic resulted in shelter-in-place restrictions across the globe in 2020. Most of the hospitals and healthcare institutions were focused on the treatment of Covid-19 related patients and working on emergency cases. As such, there was a decline in elective surgeries, which impacted Boston Scientific's sales. However, now that several countries have undertaken large-scale vaccination programs for Covid-19, we forecast a gradual rise in the company's revenues.

Launch of new products

Boston Scientific spends a significant portion of its revenues on research and development. As a result, it has been able to launch many self-manufactured products in the market. In the last few years, the company has launched a few new devices in its major segments. For instance, the company launched its RESONATEâ„¢ cardiac resynchronization therapy defibrillator (CRT-D) systems in Europe in 2017, and it has been fueling defibrillator growth.

Acquisitions in all segments

Following its historical acquisition strategy, Boston Scientific has acquired several companies in the last few years in order to expand its product portfolio. Most recently in 2018, the company acquired NXThera for $406 million. It also acquired BTG plc, and Millipede Inc over the recent years.

Restructuring program

Boston Scientific is undertaking a restructuring program which aims to improve efficiency and innovation. This should help improve its market presence while also cutting costs, benefiting margins.

Healthcare reform could impact selling prices

Stringent healthcare regulations have implemented checks on the pricing structure of medical device companies, which could have a negative impact on global revenue growth.