New Product Launches And Attractive Valuation To Drive Boston Scientific Stock Higher

Despite a 47% rise since the March lows, at the current price of around $38 per share we believe Boston Scientific stock (NYSE: BSX), has more room for growth in the near term. BSX stock has rallied from $26 to $38 off the recent bottom compared to the S&P which moved 60% over the same period, with the resumption of economic activities as lockdowns are gradually lifted. BSX stock also remains over 15% lower since the start of the year, though looking at a longer horizon, it is up 53% from levels seen in early 2018, over two years ago.

Some of the 53% rise of the last 2 years is justified by the 19% growth seen in Boston Scientific’s revenues from 2017 to 2019, while its revenue per share (RPS) grew 17% to $7.71 in 2019, compared to $6.60 in 2017. This mismatch can be attributed to a 1.6% uptick in total shares outstanding due to share issuances. Along with the growth in RPS, the company’s P/S Multiple also expanded. We believe the stock is likely to see upside despite the recent uptick and the potential weakness from a recession-driven by the Covid outbreak. Our dashboard, ‘What Factors Drove 53% Change in Boston Scientific Stock between 2017 and now?‘, has the underlying numbers.

Boston Scientific’s P/S multiple changed from 3.8x in 2017 to 5.9x in 2019. While the company’s P/S is 4.9x now, there is a potential upside when compared to levels of around 6x seen as recently as late 2019.

So what’s the likely trigger and timing for upside?

The global spread of coronavirus has resulted in deferment of elective surgeries in the first half of the year, impacting the sales of medical devices companies, including Boston Scientific, which saw a 24% drop in sales in Q2 alone. That said, with economies gradually opening up, the elective surgeries are now being attended to, evident from Boston Scientific’s Q3 performance with sales now down just 1.8% y-o-y. The company expects to return to organic growth in Q4. Specifically, it should benefit from its new product launches that includes: Watchman FLX, Exalt, Polarx, and WaveWriter Alpha among others.

Looking at the broader economy, the actual recovery and its timing hinge on the containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. At levels of around $38, BSX stock is trading at 4.7x its 2021 expected RPS of $8.05. This compares with P/S of 5.9x seen as recently as late 2019, making the stock appear attractive for upside potential.

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