We think that Veeva Systems stock (NYSE: VEEV), a cloud-computing company focused on pharmaceutical and life sciences industry applications, currently is a better pick compared to Boston Scientific stock (NYSE:BSX), despite Veeva being the more expensive of the two. Veeva trades at about 23x trailing revenues, compared to just 5x for Boston Scientific. We are comparing these two companies given their similar operating income levels.
Both the stocks have underperformed with mid-single-digit growth year-to-date, compared to 22% growth for the broader S&P 500. While Boston Scientific saw a fall in demand for medical devices and supplies during the pandemic, due to fewer surgical procedures, Veeva’s business expanded with increased adoption of digital communication channels. In fact, Boston Scientific’s revenue declined 8% during the pandemic, while Veeva’s revenue expanded a solid 28%. However, there is more to the comparison. 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 margin growth. Our dashboard Boston Scientific vs Veeva: Similar Operating Income; Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.
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1. Veeva’s Revenue Growth Has Been Better
- Veeva’s revenue growth of 26% over the last quarter was much higher than 9% for Boston Scientific, led by strong 29% growth in subscription revenues. Boston Scientific’s revenue growth was driven by a rebound in procedure volume. Now, if we were to look at the last twelve-month revenue growth, Veeva’s 30% figure is much better than 13% growth for Boston Scientific. Looking at an even longer time frame, Veeva’s last three-year revenue CAGR of 28% is also far better than just 3% CAGR for Boston Scientific.
- Looking forward, Veeva is expected to see strong 22% average annual revenue growth compared to just 5% for Boston Scientific. For Boston Scientific, its popular Left Atrial Appendage Closure (LAAC) device – Watchman – will now face competition from Abbott’s Amulet (LAAC device), which received the U.S. FDA approval in August this year. For perspective Watchman sales alone were expected to be $1 billion over the next couple of years, but the growth may slow as Amulet will also gain some market share. With economies now opening up, the demand for medical devices is likely to remain high in the near term, but it will normalize after the backlog of procedures is cleared. Our Boston Scientific Revenues dashboard provides more insight on the company’s revenues.
- For Veeva, its subscription business has been the key growth driver in the recent past. The company reported its Q3 fiscal 2022 results yesterday (Dec 1), with sales of $476 million, and EPS of $0.97, both comfortably above the consensus estimates of $466 million and $0.88, respectively. The company’s Q4 guidance for revenue of $479 million and EPS of $0.88 was also largely in-line with the average of analysts forecasts ($480 million and $0.86, respectively). However, VEEV stock tumbled nearly 4% in yesterday’s trading session, and it is also down another 4% in after hours. This can be attributed to two factors. One, the company provided fiscal 2023 revenue guidance of around $2.16 billion, falling short of analysts expectations of $2.19 billion, and two, the broader markets declined after the first Omicron case was confirmed in the U.S. Our dashboard on Veeva Revenues offers more details on the company’s revenues and provides comparison to its peers.
2. Veeva Is More Profitable
- Similar to the pattern seen in revenue growth, Veeva’s operating margin of 27% over the last twelve month period (does not take into account the Q3 numbers reported yesterday) is 7x better than just 4% for Boston Scientific, and it compares with 26% and 14% figures in 2019, before the pandemic, respectively. Even if we were to look at the last three-year change in operating margin, Veeva’s 140 bps rise is better than a 350 bps decline for Boston Scientific.
- Overall, Veeva’s operating margin has historically been better than Boston Scientific, and it is on an uptrend, while the margin has contracted for Boston Scientific, partly due to the impact of the pandemic on its business. Looking forward, although the operating margin for both companies is likely to pick up, it is expected to remain below the 2019 levels for Boston Scientific, but higher than 2019 levels for Veeva, in our view. Our Veeva Operating Income Comparison and Boston Scientific Operating Income Comparison provides more details on the margins.
The Net of It All
Now that nearly 60% of the U.S. population is fully vaccinated against Covid-19, with overall economic activity picking up, the demand for medical devices and supplies is likely to rise going forward, boding well for Boston Scientific. For Veeva, a broader shift to digital communication is likely to pave way for continued growth for the company.
That said, Covid-19 is proving more difficult to contain than initially thought, due to the spread of more contagious virus variants and infections in some of the geographies, including Europe, are higher than what they were a few months back. The concerns around Omicron have spooked the markets at large with one confirmed case in the U.S. as well. If there is another large spike in Covid-19 cases from the new variant, it will disrupt economic recovery and impact sales as well as earnings growth of many companies. This may result in pressure on margins in the near term, especially for Boston Scientific.
- While Boston Scientific’s current valuation is surely more attractive than that of Veeva, with BSX stock trading at about 5x trailing revenues, versus 23x for Veeva, the latter has demonstrated better revenue growth and it is more profitable. Not only that, even if we were to look at financial risk, Veeva is debt free, while for Boston Scientific debt as a percentage of its equity is around 16%. Veeva’s 67% cash as percentage of assets is far better than the 6% figure for Boston Scientific, implying that Veeva has much lower financial risk compared to Boston Scientific.
- Overall, Veeva trumps Boston Scientific in most of the metrics that matter for investors and we think this gap in valuation between VEEV and BSX is largely justified. In fact, looking forward, it is likely that the gap in valuation of these two companies will remain in the foreseeable future and Veeva may continue to outperform with its better growth prospects and lower risk. We believe that investors can use the current dip in VEEV stock following its Q3 release yesterday as a buying opportunity for higher gains in the long run.
- The table below summarizes our revenue and return expectation for BSX and VEEV over the next three years, and points to an expected return of 25% for BSX over this period vs. 58% for VEEV. Our dashboard Boston Scientific vs Veeva has more details on how we arrive at these numbers.
Wondering how Boston Scientific peers stack up? Check out Boston Scientific Stock Comparison With Peers to see how BSX stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
|S&P 500 Return||0%||23%||106%|
|Trefis MS Portfolio Return||0%||44%||292%|
 Month-to-date and year-to-date as of 12/2/2021
 Cumulative total returns since 2017