Sell Baxter International To Buy Boston Scientific?

by Trefis Team
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Based on historical performance, Boston Scientific (NYSE:BSX) appears to be an attractive bet compared to Baxter International (NYSE:BAX) for growth after the current COVID-19 crisis winds down. The current coronavirus crisis will likely impact medical devices companies on two fronts, 1. supply chain disruptions, and 2. decline in number of procedures performed impacting the sales. For Boston Scientific in particular, Q1 and Q2 2020 revenue growth will likely be impacted by elective procedures being cancelled or postponed. While it is difficult to time the worst, procedure growth could get back to a normal growth rate as soon as late Q2 or early Q3, thereby fueling growth for medical devices companies. Looking at stock price movement, Boston Scientific saw a 16% decline while Baxter International is up 1% since early February, after the WHO declared a global health emergency.

The outperformance of Baxter International can be attributed to the surge in demand for its products required in hospitals. The company has boosted its capacity and production to help address higher demand for blood purification systems, drug delivery system, and other products used in the hospitals. In fact, the company could see mid-single-digit sales growth in Q1 2020, as per the consensus estimates. While Baxter will likely see sales growth in the current crisis, we believe Boston Scientific could be a better bet for investment, purely based on historical growth. Our analysis, Is Boston Scientific Expensive Or Cheap Compared To Baxter International After Declining Over -16%? compares the stock price performance and fundamentals of Boston Scientific and Baxter International over the last few years.

CORONAVIRUS CRISIS: Since early February, Boston Scientific stock has declined -16% compared to +1% for Baxter International

  • Boston Scientific’s stock has declined by about 16% since early February, compared to 1% growth for Baxter International, after the WHO declared a global health emergency relating to Coronavirus.
  • Boston Scientific’s stock fell 7%, while Baxter International’s stock is up 5% since March 8th, after the U.S. cases accelerated.

HISTORICAL PERFORMANCE: From 2009-2019 Boston Scientific stock has grown at 1.8x the rate of the Baxter International

  • Boston Scientific stock went from $9.00 at the end of 2009 to $45.22 at the end of 2019, representing a change of 402.4%.
  • During the same time period, Baxter International went from $26.14 to $83.41 representing a change of 219.1%.
  • This implies that Boston Scientific stock grew at 1.8x the rate of Baxter International.

ANALYSIS:

How do valuations for Boston Scientific and Baxter International compare, based on the review of fundamentals?

  • Based on current P/E ratios, BSX stock looks attractive compared to prior years and attractive compared to Baxter International.
  • Boston Scientific 2019 current P/E ratio of 22.1 is 0.8x that of the current Baxter International P/E ratio of 27.2x.
  • P/E Ratio is calculated based on year end market price and trailing earnings. However, for 2020 P/E, we use 2019 earnings and current market price.

Historical Revenue & EPS Growth

  • Boston Scientific 2014-19 annualized revenue growth of 7.8% is 6.5x that of the 2014-19 Baxter International annualized revenue growth rate of 1.2%.
  • The surge in 2016 revenue growth for Boston Scientific can partly be attributed to acquisition of American Medical Systems’ (AMS) Men’s Health and Prostate Health businesses.
  • Our analysis on Boston Scientific Revenues provides more details on the company’s business model, business segments, historical revenue growth, and forecasts.
  • Boston Scientific 2014-19 annualized EPS growth of 14% is 0.4x than that of the 2014-19 Baxter International annualized EPS growth rate of 32%.

Conclusion

While Baxter International stock been more resilient through the crisis, thus far, due to surge in demand for its products required in hospitals, Boston Scientific could face decline in sales in the near term, due to delay of elective surgeries. However, based on historical performance, Boston Scientific appears to be a better bet in the longer term compared to Baxter International. Boston Scientific’s average revenue growth has been much higher than that of Baxter International though Baxter posted better earnings growth. In terms of valuation, Boston Scientific is currently trading at a lower P/E multiple compared to Baxter International, as well as its own historical multiple.

 

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