We believe Boston Scientific stock (NYSE: BSX) will likely offer better returns over Abbott stock (NYSE: ABT) in the next three years. Boston Scientific is trading at 5.5x revenues compared to 4.5x for Abbott. Investors have assigned a lower multiple to ABT due to a significant fall in its Diagnostics sales amid lower Covid-19 testing demand.
Interestingly, BSX has had a Sharpe Ratio of 0.5 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. However, Abbott’s Sharpe Ratio of 0.7 fared better than the S&P500. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
If we look at stock returns, Boston Scientific, with 9% returns in the last twelve months, has fared better than Abbott, down 4%, and both have underperformed the broader S&P 500 index, up 14%. There is more to the comparison, and in the sections below, we discuss why we believe BSX will offer better returns over ABT in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Boston Scientific vs. Abbott: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
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1. Abbott’s Revenue Growth Is Better
- Abbott’s revenue growth has been better, with an 11.4% average annual growth rate in the last three years, compared to 6.3% for Boston Scientific.
- A high demand for Covid-19 testing drove Abbott’s sales growth in recent years. With the worst of Covid-19 behind us, the demand for testing has been declining, weighing on Abbott’s diagnostics business in recent quarters.
- Abbott will see a dip in sales in 2023 owing to its diagnostics business. For perspective, Abbott expects total Covid-19-related sales of $2.0 billion in 2023, compared to $8.4 billion last year. However, it should return to growth next year, and its other businesses, including Medical Devices and Established Pharmaceuticals, should continue to grow steadily.
- For Boston Scientific, revenue growth is driven by an uptick in total procedures after a decline during the pandemic. It has also benefited from new product launches, including POLARx (Japan), Vercise, and XL valves.
- 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.
- Looking at the last twelve months, Boston Scientific’s 8.7% sales growth has fared much better than -11.7% for Abbott.
- Our Boston Scientific Revenue Comparison and Abbott Revenue Comparison dashboards provide more insight into the companies’ sales.
2. Abbott Is More Profitable
- Abbott’s reported operating margin expanded from 14% in 2019 to 19% in 2022. In comparison, Boston Scientific’s operating margin slid slightly from 14% in 2019 to 13% in 2022.
- Looking at the last twelve-month period, Abbott’s operating margin of 15% fares better than 14% for Boston Scientific.
- Our Boston Scientific Operating Income Comparison and Abbott Operating Income Comparison dashboards have more details.
- Looking at financial risk, Abbott fares better. Its 9% debt as a percentage of equity is lower than 12% for Boston Scientific Airlines, and its 11% cash as a percentage of assets is higher than 1% for the latter, implying that Abbott has a better debt position and has more cash cushion.
3. The Net of It All
- We see that Abbott has seen superior revenue growth, is more profitable, has a better financial position, and is trading at a comparatively lower valuation multiple over Boston Scientific.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Boston Scientific will offer better returns compared to Abbott over the next three years.
- Looking at recent financials, Abbott appears more appealing. Still, after a meaningful decline in the Covid-19 testing demand, the revenue growth for Abbott will likely be tepid. At the same time, Boston Scientific sales are expected to expand faster, aided by its new products.
- If we compare the current valuation multiples to the historical averages, ABT fares slightly better. Abbott stock trades at 4.5x trailing sales compared to its last five-year average of 5.4x, and Boston Scientific stock trades at 5.5x vs. the last five-year average of 5.9x.
- Our Boston Scientific (BSX) Valuation Ratios Comparison and Abbott (ABT) Valuation Ratios Comparison have more details.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 18% for Boston Scientific over this period vs. a 9% expected return for Abbott stock, implying that investors will likely be better off picking BSX over ABT, based on Trefis Machine Learning analysis – Boston Scientific vs. Abbott – which also provides more details on how we arrive at these numbers.
While BSX may outperform ABT in the next three years, 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.
|S&P 500 Return||-4%||14%||96%|
|Trefis Reinforced Value Portfolio||-7%||28%||556%|
 Month-to-date and year-to-date as of 8/23/2023
 Cumulative total returns since the end of 2016