Here's Why You Should Retain Boston Scientific (BSX) for Now
Investors are optimistic about Boston Scientific (BSX) given a strong second-quarter performance and strength in the Structural Heart business.
Boston Scientific Corporation BSX is gaining from favorable MedSurg business trends and long-term potential in the Structural Heart business. The company exited the second quarter of 2021 with better-than-expected results. Strong sequential performance and quicker-than-anticipated recovery from the pandemic during the quarter instill optimism. However, legal hassles and stiff competition do not bode well.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 12.7% compared with 15.1% growth of the industry and a 37.1% rise of the S&P 500.
The renowned manufacturer of medical devices and products has a market capitalization of $64.66 billion. Its earnings for the second quarter of 2021 surpassed the Zacks Consensus Estimate by 8.1%.
Over the past five years, the company registered earnings growth of 0% compared to the industry’s 6.2% rise and the S&P 500’s 2.8% increase. The company’s long-term projected growth of 9.4% compares with the industry’s growth projection of 16.1% and the S&P 500’s expectation of 11.3% growth.
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Let’s delve deeper.
Factors At Play
Q2 Upsides: Boston Scientific ended the second quarter with better-than-expected adjusted earnings and revenues. Notably, the figures topped the company’s expectations by a wide margin. The company registered strong sequential and year-over-year improvement. Organic sales grew 52% year over year and 9% compared to the 2019 comparable period. Recovery from the pandemic occurred more quickly than expected, particularly in the United States. Importantly, six out of the company’s seven businesses grew double digits organically versus 2019. Five of the business units grew faster than their respective markets. Ongoing new product launches contributed to the top line significantly. The company’s raised full-year 2021 guidance is indicative that this growth momentum will continue.
MedSurg Business Grows: We are upbeat about Boston Scientific’s MedSurg business, which saw faster recovery from pandemic-led business disruption compared to the rest of its business arms. During the second quarter, sales within urology/pelvic health grew 16% year over year organically on balanced regional growth with strength in Stone, Pelvic Health and Prostate Health franchisees. Within endoscopy, second-quarter sales improved 15% with broad-based recovery across regions and notable strength in infection prevention. In the quarter, Boston Scientific also gained CE Mark approval for its Exalt Model B Single-Use Bronchoscope, which is a significant step forward.
Structural Heart, a Long-Term Growth Component: During the second quarter of 2021, Boston Scientific’s Interventional Cardiology organic sales grew 55.2% driven by double-digit growth in Structural Heart Valves, WATCHMAN and Complex PCI and Imaging franchises. In TAVR, the ACURATE neo2 launch continued to do well in Europe. Notably, the company’s cerebral embolic protection device, SENTINEL, achieved its highest quarterly sales to date in the second quarter with strong new account openings globally. We are optimistic that the combined strength of WATCHMAN, ACURATE and SENTINEL has positioned the company well to capture a significant structural heart market share in the coming years.
Legal Hassle: Boston Scientific continues to incur legal escalating operating costs on its constant involvement in handling serious legal problems. These legal expenses are putting huge pressure on the company’s bottom line. Boston Scientific is currently working to resolve its mesh litigation. Per the company, materially, all U.S. claims have been settled or are in the final stages of settlement and it continues to work to fully resolve global mesh claims. However, given the nature of resolving the final claims and COVID-related delays in the courts, the company expects full global resolution of mesh litigation in 2022.
Exposure to Currency Movement: Boston Scientific is highly susceptible to currency fluctuations, given that it generates 47% of its sales from international markets.
Competitive Landscape: Boston Scientific competes with a large number of players in several markets, including Cardiovascular, CRM, Endosurgery and Neuromodulation. The company faces significant competition from MedTech bigwigs like Abbott Laboratories ABT and Stryker, apart several other smaller companies.
Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.9% north to $1.61.
The Zacks Consensus Estimate for its third-quarter 2021 revenues is pegged at $3.01 billion, suggesting a 13.11% rise from the year-ago reported number.
Zacks Rank and Key Picks
VAREX, sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
BellRing Brands, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 29.1%.
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