Boston Scientific stock (NYSE: BSX) lost more than 42% – dropping from $45 at the beginning of 2020 to below $26 in late March 2020 – then spiked over 60% to around $42 now (through Nov 9, 2022). That means it is still below the pre-pandemic levels.
While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March 2020 helped the markets stage a strong recovery. Further, with economies opening up gradually, the elective surgeries that were deferred earlier in early and mid-2020 were attended to in subsequent quarters. As such, demand for Boston Scientific's products has picked up over recent quarters. However, rising concerns about slowing economic growth. high inflation, Fed action, and supply chain constraints have weighed on BSX stock so far in 2022.
Boston Scientific's revenues rose 8.1% (y-o-y) to $3.2 billion in Q3 2022, with revenue growth seen across all segments. While the Cardiovascular segment saw a 9.1% rise in sales, MedSurg sales were up 6.5%. The adjusted EPS came in at $0.43 vs. $0.41 in the prior-year quarter, reflecting a 4.9% rise due to revenue growth, partly offset by a 190 bps fall in operating margin due to higher costs.
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.
Boston Scientific unveiled its medium to long term growth strategy, targeting double-digit adjusted earnings growth, driven by margin improvements. The company aimed for an organic revenue CAGR of 6-9% during the 2020-2022 time frame. However, this plan was laid before the pandemic, and the company's estimates will have to be adjusted given the impact of the pandemic. Also, with over 40% of the U.S. population fully vaccinated against Covid-19 by the end of May 2021, the sales are expected to rebound, which will also result in margin expansion.
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 has outperformed the broader markets so far in 2022, falling just 3% compared to a 22% decline in the S&P500 index (through Nov 9, 2022).
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:
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.
Interventional Cardiology, Endoscopy, and Cardiac Rhythm Management are the major sources of revenue for the company. Here's why:
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 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.
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.
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 RESONATE™ cardiac resynchronization therapy defibrillator (CRT-D) systems in Europe in 2017, and it has been fueling defibrillator growth.
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.
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.
Stringent healthcare regulations have implemented checks on the pricing structure of medical device companies, which could have a negative impact on global revenue growth.