Boston Scientific Q3 Earnings Preview: What To Expect?

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Boston Scientific

Boston Scientific (NYSE: BSX) will report its Q3’16 earnings on October 26th. The company had reported strong sales and earnings growth in Q2’16. For the third quarter, we expect the company to report organic revenue growth (excluding acquisitions) of nearly 10%. Strong performance in the Cardio-vascular segment, as well as in the Endoscopy and Urology sub-segments, are likely to drive this growth.

Furthermore, we also expect the Boston Scientific to post improvement in its gross margin, which was lower in Q2 due to certain one-time charges related to the AMS integration and an inventory write-off for Watchman Flex. Along with these, we expect gross margin improvement from lower production cost. However, we do not expect the company to report any significant improvement in adjusted operating margin for Q3’16 on quarter-over-quarter basis mainly on account of expense related to new product launches and higher R&D cost.

Our price estimate for Boston Scientific is $25 is under update

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Strong Product Portfolio, New Launches Expected To Have Led Growth

The Cardiovascular and Rhythm Management segments  together contribute close to 55% to Boston Scientific’s valuation, in our estimation. We expect the Interventional Cardiology and Peripheral Interventions sub-segments to drive the company’s growth. Boston Scientific has very strong products in Cardiovascular segment. For Q3 we expect Lotus and Watchman to post solid numbers. Synergy is also expected to hold on to its market share despite the U.S. launch of Abbott’s Absorb. Furthermore, the company received MRIs without risk of cardiac arrest. We are uncertain of its incremental effect on revenue near term thought the benefits are obvious. However, Boston Scientific has yet to introduce MRI compatible TV-ICD device. This product gap continues to be drag giving Medtronic’s Evera SureScan a free-run.

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Bolt-on Acquisition In Last Quarter

The company announced a definitive agreement to acquire EndoChoice in last quarter. The management has expressed its intentions to utilize free-cash flow for bolt-on acquisitions. The deal is in accordance with this strategy. In an earlier article we had given thumbs up to this acquisition.  However, the deal is expected to be closed in Q4 of this fiscal and could not have had an effect on Q3’16 earnings.

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