Boston Scientific Corporation BSX remains in the spotlight, with its stock currently trading close to its 52-week high. In the past six trading sessions, the stock has consistently traded above $90.00 per share, closing at $90.43 yesterday and just shy of its 52-week high of $91.93 reached on Nov. 22.
The year so far has been quite encouraging for investors putting their money into BSX. The stock has gained 56.4% year to date, outperforming the Zacks Medical Products industry’s 11% rise and the S&P 500's growth of 28.3%. During this period, the Medical sector declined 3.6%. Despite the challenges within the medical device space, the company continued to do well, banking on its above-market performances across several of its core segments, fueled by innovation, clinical evidence generation and strong marketing strategies.
Notably, BSX has also outperformed its direct peers and MedTech behemoths like Abbott ABT and Medtronic MDT, in 2024 so far. During the said time frame, ABT gained 2.9%, while MDT lost 1.2%.
YTD Price Performance
Image Source: Zacks Investment Research
BSX Ahead of Moving Averages
Technical indicators, too, are supportive of Boston Scientific’s growth momentum. The stock is trading above its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. In fact, since Nov 25, 2022, its 50-day moving average has been ahead of the 200-day moving average. This technical strength reflects the market’s confidence in Boston Scientific’s financial health and fundamentals. This can be good news for BSX investors, signaling “support” for a further uptrend.
BSX Above the 50 and 200-day SMA
Image Source: Zacks Investment Research
Rate Cuts to Further Drive BSX Stock
We believe Boston Scientific is one of those MedTech manufacturers that can be considered the biggest gainers from the Fed’s two successive interest rate cuts in 2024. MedTech players were seen restricting their R&D activity in the past few years, hurt by the continuously growing rate of innovation-bound borrowings. These apart, high interest rates were also responsible for reducing the aggregate demand of end users, leading to demand-supply disequilibrium and price drop. Over the past several months, all these have significantly discouraged BSX and its peers from investing in medical technology innovations, resulting in a slower pace of growth.
The latest rate cuts should help Boston Scientific expand in MedTech's most attractive markets like Cardiovascular, Endoscopy, Urology and Neuromodulation by speeding up and scaling up its research and development work. The rate cut might also improve the company’s shrinking margin scenario over the near term.
BSX Continues to Ride on Core Market Growth
Boston Scientific is seeing strength across target markets. Growing worldwide demand for its gastrointestinal (GI) and pulmonary treatment options is encouraging. Particularly, the company is gaining market share by banking on the above-market growth of AXIOS and Exalt D in recent quarters. Within Urology, Boston Scientific continues to expand market share globally. The company’s Stone management and prosthetic urology franchises are growing well led by strong performances of Rezum and SpaceOAR. In Neuromodulation, Boston Scientific’s pain business is gaining traction despite softness in the Spinal cord stimulation (SCS) business. The company’s brains franchise too returned to low double-digit growth in the United States in the last-reported quarter, supported by de novo implants and competitive replacements.
Boston Scientific’s structural heart programs too are fast building momentum banking on strong performance of the WATCHMAN left atrial appendage closure device. The next generation WATCHMAN FLX and FLX Pro are strongly capturing theglobal market The company expects to see continued momentum within the WATCHMAN franchise supported by this approval as well as other significant investments in clinical evidences.
The Electrophysiology arm too continues to gain momentum on sustained adoption of FARAPULSE PFA.
BSX Has Impressive Liquidity and Solvency Position
Boston Scientific’s strong liquidity position should allow it to meet its near-term debt obligations. The company apparently looks quite burdened by debt, with total debt (including the current portion) of $10.89 billion as of Sept 30, 2024. The company’s cash and cash equivalents were $2.5 billion at the end of the third quarter of 2024. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.65 billion is lower than the short-term cash level. The company’s times interest earned ratio is also at an impressive level of 8.6, indicating that BSX is well capable of paying the interest on its business debts on time.
Downside Threats Exist
The industry-wide trend of difficult macroeconomic conditions in the form of geopolitical pressure leading to disruptions in economic activity, global supply chains and labor markets is creating a challenging business environment for Boston Scientific. International conflicts, including the Russia-Ukraine war and tension between China and the United States, have increased international trade-related complications for Boston Scientific, which has huge international exposure. Further, volatile financial market dynamics and significant volatility in price and availability of goods and services are putting pressure on Boston Scientific’s profitability. With sustained macroeconomic pressures, the company may struggle to keep its operating expenses in check.
In the third quarter of 2024, the company reported a 19.2% rise in the cost of products sold, leading to a mere 5 basis points expansion in gross margin. Further, there was a 25.8% rise in selling, general and administrative expenses, resulting in a 123-basis point contraction in operating margin.
Expensive Valuation Too
This is evident from the Price/Earnings (P/E) ratio. BSX shares currently trade at 33.43X forward P/E, near to their five-year high of 34.01X and much above the median of 24.81X. The stock is also trading significantly above the industry’s 20.87X. The company is also trading at a significant premium to other industry players like Abbott (22.11X) and Medtronic (20.87X).
This suggests that investors may be paying a higher price relative to the company's expected earnings growth.
Image Source: Zacks Investment Research
Our Take
BSX continues to outperform its peers in a challenging market for medical devices, banking on its continued efforts to optimize business to drive sustainable profitability and stable liquidity. We expect the company to significantly reduce the cost of manufacturing products and improve the margin scenario, benefiting from the easing monetary policy.
However, the ongoing hiccups in the form of international trade challenges and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. The stock’s stretched valuation too suggests that investors may be paying a higher price relative to the company's expected earnings growth. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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