What’s Next For Boston Scientific Stock After Outperforming During The 2022 Inflation Shock?

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Boston Scientific

Boston Scientific stock (NYSE: BSX) currently trades at $51 per share, roughly 30% above its level in March 2021, and it now seems to be fully valued. Boston Scientific saw its stock trading at around $37 in late June 2022, just before the Fed started increasing rates, and is now 36% above that level. The stock has gained 31% since September 2022 compared to the S&P 500, which gained about 13% during this period. The outperformance of BSX stock over the recent past can be attributed to its upbeat Q1 performance and raised outlook for 2023, driven by its new product launches. The notable rise in Boston Scientific’s revenues in the recent past has also contributed to the stock’s outperformance.

BSX stock is already trading above its pre-inflation shock level, and we believe that it doesn’t have much room for growth in the near term. We estimate Boston Scientific’s valuation to be around $52 per share, close to its current market price. This is because the positives appear to have been priced in the stock, and it’s now trading at a valuation multiple of 26x expected forward earnings of $1.97 on a per share and adjusted basis, higher than its last three-year average of about 23x.

This analysis captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

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2022 Inflation Shock

Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
  • April 2021: Inflation rates cross 4% and increase rapidly
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
  • Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.

 

In contrast, here’s how BSX stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

BSX and S&P 500 Performance During 2007-08 Crisis

BSX stock declined from $14 in September 2007 (pre-crisis peak) to around $7 in March 2009 (as the markets bottomed out), implying it lost nearly 50% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $9 in early 2010, rising 28% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

BSX Fundamentals Over Recent Years

Boston Scientific’s revenues rose from $18.4 billion in 2019 to $20.2 billion in 2022, driven by an uptick in total procedures after a decline during the pandemic period. It has also benefited from new product launches, including POLARx (Japan), Vercise, and XL valves, among others. This trend is expected to continue going forward. Its recent acquisitions, including Baylis, will further bolster its top-line growth. The company has acquired a majority stake in Acotec, which will aid its future sales growth in China. Considering these factors, we have assigned a slightly higher valuation multiple vis-à-vis its historical average mentioned above. Looking at earnings, BSX posted a slight decline in reported EPS of $5.72 in 2022, vs. $6.24 in 2019, due to higher costs. Its operating margin contracted to 13.3% from 16.2% over the same period.

Does BSX Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Boston Scientific’s total debt increased slightly from $7.7 billion in 2019 to $8.4 billion in 2022, while its total cash remained around $0.7 billion over this period. The company garnered $2.7 billion in cash flows from operations in 2022. Given its cash position, BSX appears to be in a comfortable situation to meet its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe Boston Scientific (BSX) stock has little room for growth even once fears of a potential recession are allayed, given its rich valuation. Also, its declining operating margin remains a risk factor to realizing any substantial gains in the near term, in our view.

While BSX stock looks fully valued, 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.

Despite higher inflation and the Fed raising interest rates, among other factors, BSX stock has risen 10% this year. Can it drop from here? 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns Jun 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 BSX Return -2% 10% 134%
 S&P 500 Return 2% 11% 91%
 Trefis Multi-Strategy Portfolio 4% 14% 259%

[1] Month-to-date and year-to-date as of 6/8/2023
[2] Cumulative total returns since the end of 2016

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