After A 40% Rally Should You Pick Boston Scientific Over Abbott?

by Trefis Team
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Medical Devices companies – Abbott (NYSE:ABT) and Boston Scientific (NSYE:BSX) – have seen their stock price grow over 40% since the March 23 lows. This can partly be attributed to the overall recovery seen in the market over the recent weeks, as well as the opening up of economies. The lockdown in various parts of the world has had a negative impact on the medical devices industry worldwide, due to the postponement of elective surgeries. This will likely have an impact on the business of both the companies, especially in Q2. That said, going by the historical performance, we believe Boston Scientific will likely fare better than Abbott in the near term.

Our conclusion is based on our detailed dashboard analysis, ‘Is Abbott Expensive Or Cheap vs. Boston Scientific?‘ wherein we compare trends in key metrics for the two established medical devices companies over the recent years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Boston Scientific Will Likely Outperform Abbott Over The Coming Months

Abbott’s P/E based on 2019 earnings has increased from over 26x in 2019 to 28x currently, while Boston Scientific’s multiple has declined from 29x to 24x. The uptick in Abbott’s multiple can be attributed to the expected growth from its rapid test for Covid-19, which is being widely used. Boston Scientific, on the other hand, could face more impact on its sales in Q2, due to its high dependency on cardiovascular related surgeries, and hospitals deferring non-emergency surgeries. However, Boston Scientific makes some of the devices that could be crucial in the current environment. Boston Scientific’s Exalt D, which is a single-use duodenoscope, will likely bolster the company’s sales over the next few quarters. Single-use duodenoscopes have now become an important device given the regular ones carry the risk of contamination between patients. Exalt D has already secured the US FDA approval, and it faces limited competition with only 4 other duodenoscopes (with disposable components) being approved. Disposable duodenosopes represent a $2 billion market opportunity for Boston Scientific.

Abbott’s multiple compared to Boston Scientific appears high, considering that the company’s revenues and margins are also at risk due to deferment of elective surgeries. Notably, Abbott’s P/E is at the highest level of the last 6 years and it is 5% above the figure at the end of 2019. On the other hand, Boston Scientific P/E is 15% lower from the levels seen at the end of 2019. As such,  we believe Boston Scientific’s stock, based on fundamentals and current valuation, will likely offer better returns compared to Abbott over the coming months.

But How Long Will Boston Scientific’s Stock Remain Under Pressure?

  • The expected timeline for recovery in global economic conditions, and in Boston Scientific’s stock, hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.
  • Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Merck’s multinational peers. The complete set of coronavirus impact and timing analyses is available here.
  • We believe there will be a recovery in demand for most sectors by late June or early July, with gradual lifting of lockdowns and a gradual rise in number of Covid-19 cases remaining within the manageable capacity of hospitals and care providers.
  • Although most companies will report poor Q2 results starting mid-July, market expectations will be buoyed by a visible improvement in the situation on the ground.

Not only compared to Abbott, Boston Scientific compared to Haemonetics, and Boston Scientific compared to Baxter International appears to be a better bet, in our view.

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