After a 13% fall year-to-date, at the current levels, we believe Boston Scientific stock (NYSE: BSX) is undervalued. BSX stock fell from around $43 in early January to under $38 now. The YTD 13% fall for BSX compares with -20% returns for the broader S&P500 index.
Looking at the longer term, BSX stock is down 16% from levels seen in late 2019. This marks an underperformance compared to some of its peers, with Abbott stock rising 25%, Stryker stock seeing a 6% fall, and the S&P 500 index rising 19% over the same period.
This 16% fall for BSX stock since late 2019 was driven by: 1. the company’s P/E ratio, which fell 19% to 23x trailing adjusted earnings currently, compared to 28x in 2019, partly offset by 2. a 4% rise in the company’s earnings to $1.65 for the last twelve months, vs. $1.58 in 2019, on a per share and adjusted basis.
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Boston Scientific’s revenue grew 13% to $12.2 billion over the last twelve months, compared to $10.7 billion in 2019, primarily led by higher sales for its peripheral interventions, endoscopy, and women’s health products. Its Left Atrial Appendage Closure (LAAC) device – Watchman – has gained market share, driven by a higher physician utilization rate, bolstering its overall revenue growth. The company faced headwinds in 2020 due to a decline in the total number of elective surgeries performed. However, it saw a sharp rebound in 2021, with sales across segments higher than in 2019, before the pandemic.
However, the company’s net margins have declined around 130 bps to 19.5% currently, compared to 20.8% in 2019, due to higher costs. The company’s COGS grew 19% between 2019 and 2021, for an 11% rise in total sales. Also, Boston Scientific’s total shares increased 2% since 2019 to 1.4 billion now. A decline in net margins and rise in total shares partly offset the revenue growth since 2019, weighing on its EPS growth.
Over the recent quarters, Boston Scientific has benefited from a rise in elective procedure volume, a trend expected to continue in the near term. The company’s recent acquisition of Baylis Medical should bolster its overall revenue growth going forward. Despite the ongoing supply chain disruption, the company posted upbeat Q1 results and raised its full-year outlook.
While the company has good prospects, it faces headwinds from the current weakness in broader markets. The S&P500 has now entered near bear market territory with rising concerns of slowing economic growth given the high inflation, Fed action, and supply chain disruptions. These factors may impact Boston Scientific’s performance, as well.
However, some of these factors appear to have already been priced in by the investors, given the 13% decline in BSX stock this year. We estimate Boston Scientific’s valuation to be $47 per share, reflecting a 25% upside from its current market price of $37, implying that investors are likely to be better off buying BSX stock in the recent dip for solid gains in the long-term. At its current levels, BSX stock is trading at just 21x forward adjusted earnings, compared to the last three-year average of 31x, making the stock attractive from a valuation point of view.
While BSX stock looks undervalued, it is helpful to see how Boston Scientific’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Xylem vs. Merck.
With inflation rising and the Fed raising interest rates, among other factors, BSX stock has fallen 13% this year. Can it drop more? See how low Boston Scientific stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||2%||-19%||72%|
|Trefis Multi-Strategy Portfolio||3%||-20%||213%|
 Month-to-date and year-to-date as of 7/12/2022
 Cumulative total returns since the end of 2016