Why Boston Scientific Needs To Innovate

-7.01%
Downside
68.49
Market
63.69
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BSX: Boston Scientific logo
BSX
Boston Scientific

The last 2 years have been good for Boston Scientific’s (NYSE:BSX) business. After a period of declines, the revenue growth revived and the stock gained nearly 50%. However, it may become increasingly challenging to sustain this revival considering the growing price competition and lack of groundbreaking innovation. As healthcare providers in developed countries manage costs and emerging markets become obvious growth avenues, we believe that small players with undifferentiated but low priced products may give Boston Scientific tough competition. The company has to innovate – be it its products or its business model. Take a look at our interactive breakdown of Boston Scientific’s  business which shows how the company can lose value in face of growing price competition.

Our price estimate for Boston Scientific stands at $30, which is slightly above the current market price.

Boston Scientific Risks Losing 20% Of Its Value Due To Price Competition

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Boston Scientific is facing strong price competition, and some product categories such as stents have seen double digit percentage price declines. This is happening as small firms such as Draco are gaining market share with low prices, innovative business models and transparent tender processes. In addition, healthcare providers are being careful with respect to purchases due to cost pressure on the healthcare system.  Therefore, we believe that Boston Scientific simply must innovate to differentiate its products on efficacy and safety. Impactful innovation in the medical device industry has dried up somewhat of late, which has given smaller players an opportunity to capture market share with undifferentiated but low-priced products. We believe that if price competition slows down Boston Scientific’s revenue growth revival, our price estimate could see a nearly 20% downside.

Boston Scientific’s $30 Price Estimate Is Based On Revenue Growth Revival

In the last two years, Boston Scientific’s MedSurg Revenue, Cardiovascular Revenue and Rhythm Management Revenue have seen accelerated growth. Our price estimate of $30 is based on the assumption that the recent growth will continue, driven by new products such as Spy DS visualization system, Axios stent, and Res 360 hemostasis clip. However, with product recalls and price competition, the forecast may turn out to be too optimistic.

20% Downside If Revenue Growth Revival Fades Due To Price Competition

If Boston Scientific’s revenue growth revival fades due to extreme price competition, our overall revenue forecast could fall by as much as $1.75 billion below our base estimate for 2022. With net margins of nearly 18%, this would imply net income reducing by $300 million, and EPS falling by 15%-20%. This, in turn, would result in a downside of around 20% to our price estimate for Boston Scientific.

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