Ride Intuitive Surgical Over Boston Scientific In The Current Crisis?

Based on historical performance, Intuitive Surgical (NASDAQ:ISRG) appears to be an attractive bet compared to Boston Scientific (NYSE:BSX) in the current crisis. The current coronavirus crisis will likely impact medical devices companies on two fronts, 1. supply chain disruptions, and 2. decline in number of procedures performed. For Boston Scientific and Intuitive Surgical, Q1 2020 revenue growth will likely be impacted by several elective procedures being cancelled or postponed. While it is difficult to time the worst, procedure growth could get back to a normal growth rate as soon as Q2 or Q3, thereby fueling growth for medical companies. Intuitive Surgical’s stock is down by about -11% compared to about -22% for Boston Scientific since early February.

The revenue decline in the near term is unlikely to be significant. For instance, Boston Scientific’s Q1 2020 revenues are still estimated to grow in high single-digits, while Intuitive Surgical’s sales are expected to grow in low double digits, as per the consensus estimates. While the outlook for both companies remains strong, as both the companies have a strong product portfolio to drive revenue growth, we believe Intuitive Surgical could be a better bet in the current environment. Intuitive Surgical has seen strong growth in installed base of its robotic systems, and it translates into higher demand for its instruments & accessories, thereby driving sales growth. Fewer and smaller incisions, less blood loss, shorter hospital stays, faster recoveries, and fewer scars than traditional open surgery are some of the benefits why patients opt for robotic surgery. With higher demand for procedures, Intuitive Surgical managed to grow its installed base from around 3,000 units in 2014 to over 5,500 units in 2019. While there are other robotic platforms that have received the U.S. FDA approvals, so far there has been no visible threat to Intuitive Surgical’s business, and the market itself could grow exponentially over the coming years.

Our analysis, Is Boston Scientific Expensive Or Cheap Compared To Intuitive Surgical After Declining Over -20%? compares the stock price performance and fundamentals of Boston Scientific and Intuitive Surgical over the last few years.

CORONAVIRUS CRISIS: Since early February, Boston Scientific stock has declined -22% compared to -11% for Intuitive Surgical

• Boston Scientific’s stock has declined by about 22% since early February, compared to 11% decline for Intuitive Surgical, after the WHO declared a global health emergency relating to Coronavirus.
• Boston Scientific’s stock fell 13% while Intuitive Surgical’s stock fell 11% since March 8th, as the U.S. cases accelerated.

HISTORICAL PERFORMANCE: From 2009-2019 Boston Scientific stock has grown at 0.8x the rate of the Intuitive Surgical

• Intuitive Surgical went from $101.14 to $591.15 representing a change of 484.5%.
• During the same time period, Boston Scientific stock went from $9.00 at the end of 2009 to $45.22 at the end of 2019, representing a change of 402.4%.
• This implies that Intuitive Surgical stock grew at 1.2x the rate of Boston Scientific.

ANALYSIS:

How do valuations for Intuitive Surgical and Boston Scientific compare, based on the review of fundamentals?

• P/E Ratio: Based on trailing 2019 P/E ratios, BSX stock looks attractive compared to prior years and attractive compared to Intuitive Surgical.
• Boston Scientific’s 2019 trailing P/E ratio of 28.6 is 0.6x that of the 2019 Intuitive Surgical P/E ratio of 46.3

Historical Revenue & EPS Growth

• Intuitive Surgical’s 2014-19 annualized revenue growth rate of 16% is 2x that of the 2014-19 annualized revenue growth of 8% for Boston Scientific.
• Intuitive Surgical’s 2014-19 annualized adjusted EPS growth of 16% is marginally higher than that of the 2014-19 Boston Scientific’s annualized adjusted EPS growth rate of 15%.

Conclusion