Urology And Neuromodulation Will Likely Drive Boston Scientific’s Near Term Growth

Boston Scientific (NYSE:BSX) recently posted a better than expected Q2 performance with a low-double digit revenue growth and 9% jump in adjusted EPS, led by a robust growth across all segments. The company has raised its revenue guidance, and it now expects the growth to be in the range of 5% to 6%, while it kept the EPS guidance unchanged in the range of $1.37 to $1.41 for the full year. Looking forward, we continue to believe that the MedSurg segment will likely outperform in the near term, due to a continued growth in Urology & Pelvic Health, especially in the emerging markets, along with Neuromodulation, which is seeing strong demand for WaveWriter. We have created an interactive dashboard ~ A Quick Snapshot of Boston Scientific’s Q2 Performance And Trefis Estimates For 2018. You can adjust the revenue and margin drivers to see the impact on the company’s revenues, earnings, and price estimate.

Expect All Segments To See Steady Growth In 2018

We now expect Boston Scientific’s MedSurg revenue to grow by 10% in 2018, led by a continued growth in both Endoscopy, as well as Urology & Pelvic Health. Both of these saw a low double digit revenue growth in Q2. We continue to believe that the segment growth will be bolstered by the introduction of new products, and a ramp up in the existing product line, which includes SpyGlass DS visualization platform, Axios stent, and the Resolution 360 platform. Also, LithoVue, the company’s single-use digital ureteroscope, is seeing strong growth, and we expect this trend to continue in the near term. We forecast the gross profit margins to be around 72% for the full year, in line with the company’s guidance. 

In the Cardiovascular segment, we expect revenues to grow around 7.5% in 2018, driven by continued growth for Synergy, and Promus stents. The company is seeing an increased demand for its drug-eluting products in Europe, and it plans to launch similar products, including Eluvia DES, and Ranger DCB in the U.S. over the next couple of years. This should aid the segment growth in the long run. 

Looking at Rhythm Management & Neuro segment, we now forecast revenues to grow around 7.5% in 2018. While we forecast a low single digit growth for Cardiac Rhythm Management, we believe the other two sub-segments, Electrophysiology, and Neuromodulation, will see strong growth. In fact, Electrophysiology revenues were up 18.5% while Neuromodulation revenues were up 31.5% in Q2. The company is seeing strong demand for WaveWriter in the U.S. as well as Europe, and it expects the trend to continue in the second half. We currently forecast Neuromodulation revenues to grow in high teens for the full year. Cardiac Rhythm Management has been facing some pressure due to growing competition from Abbott in the recent past. Through the acquisition of St. Jude Medical, Abbott has significantly strengthened its cardiovascular business, and it will likely pose a major competitive threat to Boston Scientific going forward. It will be interesting to see if the company’s newly launched  Resonate platform could boost the segment sales in the coming years. 

Overall, Boston Scientific’s Q2 earnings were better than Street estimates, with all segments showing growth. We believe that the MedSurg segment will be the key growth driver for the company in the near term.  We expect the company to post earnings of $1.37 in 2018. We forecast a TTM price to earnings multiple of around 28x, to arrive at our price estimate of $39 for Boston Scientific, which is at more than 10% premium to the current market price.

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