[Updated: 5/14/2021] BSX Stock Update
The stock price of Boston Scientific (NYSE:BSX) has corrected 3.5% over the last five trading sessions, and the dip appears to be a good buying opportunity in our view. Not only did the company post an upbeat performance in Q1, it has seen multiple positive developments of late. Earlier this week, the company launched a clinical trial for its Agent drug-coated balloon (DCB). This is the first clinical trial in the U.S. to evaluate the safety and effectiveness of a DCB in patients with coronary in-stent restenosis (ISR).
The Agent DCB is designed to open narrowed vessels and then transfer the drug to the vessel wall. If approved, this will be another important innovation from Boston Scientific. The treatment options available currently include the insertion and layering of additional stents, or radiation, both of which are subject to safety risks for patients. 
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Boston Scientific has also announced two acquisitions – Preventice Solutions, and Lumenis – so far this year. Preventice offers mobile cardiac health solutions and services, including ambulatory cardiac monitors and mobile cardiac telemetry.  Lumenis develops laser systems, fibers, and accessories used for urology and otolaryngology procedures.  Both the acquisitions will bolster Boston Scientific’s top-line growth going forward. Furthermore, now that over 46% of the U.S. population has received at least one shot of the Covid-19 vaccine, the U.S. economy will likely open up sooner. This will result in increased demand for overall procedure volume, boding well for Boston Scientific in the near term. Note that a decline in total number of procedures performed in 2020 weighed on the overall sales of medical devices companies, including Boston Scientific.
The recent decline in BSX stock can be attributed to a broader sell-off in the market, owing to higher inflation fears in the U.S. The U.S. consumer prices jumped sharply due to a surge in demand, as the economy reopened. Now, is BSX stock poised to drop further or is a rise after the recent decline imminent? If the sell-off in broader market continues, BSX stock will likely feel the pain as well. However, using the recent trend (3.5% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that BSX stock will likely move higher over the next one month (twenty-one trading days).
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for BSX stock average around 3.1% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days). BSX stock is likely to perform largely in-line with the S&P500 expected returns of 3.1% over the next month (twenty-one trading days).
But how would these numbers change if you are interested in holding BSX stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Boston Scientific stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day! For BSX stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
[Updated: 3/24/2021] BSX vs. ILMN
We think that Boston Scientific (NYSE:BSX) currently is a better pick compared to Illumina (NASDAQ:ILMN). BSX stock trades at about 5.6x trailing revenues, compared to around 18.8x for ILMN. Does this gap in Illumina’s valuation make sense? Actually, to some extent it does, comparing the past performance of these two companies. However, we believe that this gap will narrow going forward in favor of Boston Scientific. While business for both the companies have been hit during the pandemic, due to deferment of elective surgeries, it is expected to see a sharp rebound in 2021, with containment of the Covid-19 virus.
Illumina’s sequencing systems have a base of over 15,000 units currently and it has seen strong growth over the recent years, given the limited competition. Looking at Boston Scientific, the sales growth over the recent years (barring 2020, which was impacted by the pandemic) has largely been driven by higher demand for its neuromodulation and peripheral intervention, which includes stents, balloon catheters, and peripheral embolization devices, among other products. The demand for these products is largely linked to the total volume of procedures performed, which was adversely impacted in 2020. Boston Scientific has come up with several new products, including Watchman FLX, Exalt, Polarx, and WaveWriter Alpha, among others, and it has been gaining market share from the likes of Medtronic. This trend is expected to continue, boding well for BSX stock over the coming years. However, there is more to the comparison between Illumina and Boston Scientific. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Boston Scientific vs. Illumina: BSX stock looks undervalued compared to ILMN stock has more details on this. Parts of the analysis are summarized below.
1. Revenue Growth
Between 2017 and 2020, Boston Scientific’s revenues grew by about 10% from $9.0 billion in 2017 to $9.9 billion in 2020. Note that 2020 revenues declined 7% y-o-y due to the impact of the pandemic on the company’s business. Looking at Illumina, total revenue grew 14% from $2.8 billion in 2017 to $3.2 billion in 2020, which also reflected a high single-digit y-o-y decline.
2. Operating Income
Boston Scientific’s operating income declined from $1.4 billion in 2017 to $-0.5 billion in 2020, due to a sharp decline in operating margins from 15% in 2017 to -5% in 2020, due to increased operating costs during the pandemic and increased R&D investments. Looking at Illumina, the operating income declined from $606 million in 2017 to $580 million in 2020, due to a contraction in margins from 23% to 18% over the same period. Now, Illumina’s operating margin has been better than Boston Scientific over the last twelve month period as well as over the recent years. Also, Illumina’s margins have been on an upward trajectory till before the pandemic.
The Net of It All
Illumina is a leader in the sequencing systems and it is likely to continue to see expansion of its base. Illumina’s revenue growth, operating income growth, and operating margins, all compare favorably with Boston Scientific over the recent years, and this has been rewarded by the investors in the form of a high multiple that ILMN stock trades at. However, as we look forward, Boston Scientific will likely continue to expand its offerings and gain market share over the coming years, though the company faces stiff competition from Medtronic and Abbott. Illumina will see increased competition in the sequencing market, with companies such as Pacific Biosciences of California also expanding their installed base, and comparatively smaller companies, including Rosewell Biotechnologies making inroads to offer less expensive sequencing options. Also, Oxford Nanopore Technologies has been gaining attention for its different approach to sequencing. We believe that an increased competition will weigh on the multiple that ILMN stock currently enjoys. As such, we believe that the valuation gap between Boston Scientific and Illumina will narrow going forward and BSX stock will offer better returns for long-term investors.
While BSX stock looks like it can gain more, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Becton Dickinson vs. Abbott.Notes:
- Boston Scientific Initiates First Coronary Drug-Coated Balloon Study in the U.S., Cath Lab Digest, May 11, 2021 [↩]
- Boston Scientific Announces Agreement To Acquire Preventice Solutions, Inc., Boston Scientific Press Release, Jan 21, 2021 [↩]
- Boston Scientific Announces Agreement To Acquire Lumenis LTD. Surgical Business From Baring Private Equity Asia, Boston Scientific Press Release, Mar 3, 2021 [↩]