We believe that Boston Scientific stock (NYSE: BSX) is a better pick over Altria stock (NYSE: MO), given its better prospects. Although these companies are from different sectors, we compare them because they have a similar market capitalization of $75 billion to $85 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.
Interestingly, Boston Scientific has had a Sharpe Ratio of 0.6 since early 2017, aligning with the 0.6 figure for the S&P 500 Index over the same period, but Altria’s Sharpe ratio of -0.2 is much lower. 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.
Looking at stock returns, BSX has fared much better with 15% gains this year than a 2% decline for MO stock. The broader S&P500 index is up 16%. There is more to the comparison, and in the sections below, we discuss why we believe BSX will offer better returns over MO in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in this analysis.
1. Boston Scientific’s Revenue Growth Is Better
- Boston Scientific’s revenue growth has been better, with a 6.3% average annual growth rate in the last three years, compared to <1% for Altria.
- Altria sells its tobacco products in the U.S. markets. Due to supply disruptions, the company’s revenue growth was impacted during the pandemic. Altria also sold its wine business for $1.2 billion in 2021, with an increased focus on smoking and smokeless products.
- With higher inflation, the company saw a decline in cigarette volume last year, a trend expected to continue in the near term. For perspective, the volume of smokable products declined 9.6% y-o-y to 86.4 million sticks in 2022. That said, pricing growth is helping the company offset some of the revenue loss from volume.
- 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 -2.7% for Altria.
- Our Altria Revenue Comparison and Boston Scientific Revenue Comparison and dashboards provide more insight into the companies’ sales.
2. Altria Is More Profitable
- Altria’s reported operating margin expanded from 3% in 2019 to 29% in 2022. In comparison, Boston Scientific’s operating margin slid slightly from 14% to 13% over this period.
- Looking at the last twelve-month period, Altria’s operating margin of 34% fares much better than 14% for Boston Scientific.
- Our Altria Operating Income Comparison and Boston Scientific Operating Income Comparison dashboards have more details.
- Looking at financial risk, both are comparable. While Altria’s 34% debt as a percentage of equity is higher than 12% for Boston Scientific, its 2% cash as a percentage of assets is higher than 1% for the latter, implying that Boston Scientific has a better debt position, but Altria has slightly more cash cushion.
3. The Net of It All
- We see that Boston Scientific has seen superior revenue growth and has a better debt position. On the other hand, Altria is more profitable, has slightly more cash cushion, 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 Altria over the next three years.
- Looking at recent financials, Boston Scientific appears more appealing. Given the higher inflation, the near-term revenue growth for Altria will likely be tepid. At the same time, Boston Scientific’s sales are expected to expand faster, aided by its new products.
- If we compare the current valuation multiples to the historical averages, BSX fares slightly better. Altria stock trades at 3.2x trailing sales, aligning with its last five-year average, and Boston Scientific stock trades at 5.8x vs. the last five-year average of 5.9x.
- Our Altria (MO) Valuation Ratios Comparison and Boston Scientific (BSX) Valuation Ratios Comparison dashboards 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 3% for Altria stock over this period vs. 16% for Boston Scientific, implying that investors will likely be better off picking BSX over MO, based on Trefis Machine Learning analysis – Altria vs. Boston Scientific – which also provides more details on how we arrive at these numbers.
While BSX may outperform MO in the next three years, it is helpful to see how Altria’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-1%||16%||99%|
|Trefis Reinforced Value Portfolio||-2%||28%||559%|
 Month-to-date and year-to-date as of 9/13/2023
 Cumulative total returns since the end of 2016