Boston Scientific Stock in 3 Years: What’s Possible?

by Trefis Team
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Though Boston Scientific (NYSE:BSX) has seen its stock rise by over 50% since the March 23 lows, it is still down by 13% year-to-date. The stock now trades at over 39x projected 2020 earnings, despite the fact that the company is likely to post an earnings decline of over 35% this year. Does this make the stock expensive? Probably not, considering that revenues could grow over 30% by 2023, while earnings growth is expected to be over 90% over the same period, generating strong returns for shareholders. Here’s how this is possible.

For more details on Boston Scientific’s historical performance, see our interactive dashboard what drove Boston Scientific stock up 59% Since The End Of 2017

Boston Scientific’s Revenues could grow 30% from the estimated $10.0 billion in 2020 to around $13 billion by 2023, representing a growth rate of roughly 9% per year (for context annual growth was about 9% between 2017 and 2019). There are multiple trends that support this continued growth. Firstly, we believe that the deferred elective surgeries due to the Covid-19 pandemic in Q1 and Q2 that is impacting Boston Scientific’s sales in 2020, will eventually be attended to.  It is not that someone who is advised to have a surgery will decide not to take it. With economies opening up gradually, already several healthcare institutions have started addressing elective surgeries. Boston Scientific makes several products from coronary stents to endoscopic devices used in the medical field, and as the elective surgeries are attended to, the company will see increased sales. Also, the company is expected to launch multiple new products over the coming months, including Watchman FLX, Acurate neo2, and Lotus Edge, among others, which will bolster revenue growth over the coming years.

While Boston Scientific will post a decline in earnings this year, the company could see strong earnings growth over 2021-2023, as the company’s past investments in R&D and product development start paying off. The company has been able to improve its Net Margins from 12% in 2014 to 21% in 2019. While we do expect a hit on margins in 2020, the margins will likely rebound to over 20% levels by 2023 or sooner, and continue to expand over the coming years. In fact, Boston Scientific’s Net Margins are better than some of its peers, such as Abbott with margins of 18% in 2019. Considering our revenue projections of roughly $13 billion and 20% margins, $1.90 in Adjusted EPS is likely possible by 2023, as compared to the projected $1.00 in 2020.

Now if Boston Scientific’s earnings grow 90% between 2020-2023, the P/E multiple will shrink to 21x from its current level, assuming the stock price stays the same, correct? But that’s what Boston Scientific’s investors are betting will not happen! If earnings expand 90% over the next few years, instead of the P/E shrinking from around 39x presently to about 21x, a scenario where the P/E metric falls more modestly, perhaps to about 29x, looks more likely. For context, Boston Scientific traded at 29x its 2019 full year earnings towards the end of the year, while Abbott traded at 26x, and Medtronic at 25x. This would make growth in Boston Scientific’s stock price by over 40% likely over the next three years.

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