Boston Scientific Earnings Review: Across Segment Growth Drive Earnings

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Boston Scientific (NYSE: BSX) announced its Q3’16 earnings on October 26th. Strong growth in Cardiovascular and MedSurg segments, along with reduced SG&A expense, drove earnings growth. The story has been recurrent since the beginning of this year. We expect growth to be on a similar line for Q4’16. Furthermore, we expect greater acceptance of Emblem S-ICD in the U.S. in Q4’16. Going into fiscal 2017 we expect organic growth to moderate. The company has strong and broad portfolio of products which imply stable revenue growth going forward. In addition, we expect the company to continue its strategy of pursuing opportunistic tuck-in acquisitions.

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

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What Happened In Q3’16?

Boston Scientific reporting organic revenue growth (excluding acquisitions & currency effects) of 9% on a year-over-year basis. Furthermore, the company reported a  reduction in non-GAAP SG&A and R&D expense as percentage of sales by about 140 bps. All these percolated into non-GAAP EPS growth of 12%.

What To Expect Going Forward?

We expect Boston Scientific to continue to experience strong demand for its Lotus and Watchman products. The company’s Synergy DES has been able to fend-off challenge from Abbott’s Absorb. This has been mainly because of greater safety perception for Synergy vis-à-vis Absorb. However, going forward, as more data flows-in for Absorb, we expect it to give tough competition to Synergy.

In the Rhythm Management segment the company is experiencing demand for its Emblem S-ICD and we expect increased penetration going forward, especially in the U.S. However, we believe the company is losing market share because of a product gap, due to delayed launch of MRI enabled TV-ICD. Currently, the timeline of the launch is Q4’17.

In MedSurg segment the company has wide range of products which reduces risk. Boston Scientific posted organic growth of 10% for the segment for Q3’16 and we expect low-double digit organic growth going forward driven by strong performance in emerging economies.

Further, we expect Boston Scientific to continue with its tuck-in acquisitions going into next fiscal. This helps the company to fill-in the product gaps. Moreover, such acquisitions can be easily integrated and the realization of revenue and cost synergies are more quickly realized. Recently, it acquired AMS male urology portfolio and Cosman Medical and announced the acquisition of EndoChoice which is expected to be completed by end of this fiscal.

 

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