Boston Scientific Remains Neutral - Analyst Blog


We have reaffirmed our Neutral recommendation on Boston Scientific Corporation ( BSX ) following its fourth quarter and fiscal 2011 results.

The challenges at Boston Scientific's core segments consisting of stents and defibrillators do not show any sign of near-term abatement. Revenues declined 8% to $1.848 billion during the quarter, missing the Zacks Consensus Estimate while the adjusted EPS met the consensus estimate. Things have improved somewhat but the company needs another couple of quarters to assess whether the market has truly stabilized.

Despite the various headwinds currently at play for Boston Scientific, product launches made in the recent past should provide some cushion to its top line. We are encouraged by the recent launches of the Promus Element stent in both US (November 2011) and Japan (March 2012). This represents $200 million in additional annualized gross margin contribution at the end of 2012. This is a part of the targeted $650-$750 million opportunity for improvement in operating profit over the next few years.

The success of Ion and Promus Element Plus in the US coupled with Johnson & Johnson 's ( JNJ ) announcement of exiting the DES business and the recent launch of Promus Element in Japan (ahead of the original mid-2012 timeline) should enable the company to improve its DES market share.

Boston Scientific has resorted to the restructuring route to strengthen its operational effectiveness and efficiency. This program is expected to reduce annual pre-tax operating expenses by $225-$275 million exiting 2013 and a part of this saving will be invested in the business to drive growth going ahead. Although benefits from these programs will not be accrued in the short term, these steps should strengthen the company in the long term.

We are also impressed with the company's focus on the emerging markets of Brazil, India and China that recorded double-digit growth during the latest quarter. The company plans to invest approximately $150 million in China over the next 5 years to build a local manufacturing operation to cater to Chinese market needs and develop a training center for healthcare providers. With the recent launch of Promus Element in China and some anticipated pricing approvals in India, contribution from these regions is expected to rise further in 2012. The strategies implemented by the company should help reap the immense potential embedded in the emerging markets.

The company continues to experience pricing pressure in the US and Europe. Additional challenges are softness in procedural volume due to economic uncertainties and competitive product launches.

Our recommendation is backed by a Zacks #3 Rank (Hold) in the short term.

BOSTON SCIENTIF ( BSX ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BSX , JNJ

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