We have reaffirmed our Neutral recommendation on
Boston Scientific Corporation
(
BSX
) with a target price of $5.75 following its second quarter fiscal
2012 results.
Boston Scientific reported loss in the reported quarter
primarily due to $3.405 billion of impairment charge related to its
EMEA business. The company reported adjusted earnings of 11 cents
per share, in line with the Zacks Consensus Estimate while revenues
lagged the estimates with a decline of 7% to $1.828.
Boston Scientific continues to witness various headwinds in its
core segments. Despite this, several of its businesses such as
Peripheral Interventions, Endoscopy and Urology recorded
mid-to-high single digit growth (at constant currency) with
Neuromodulation being the most impressive with 10% growth during
the reported quarter.
The company is working on portfolio expansion, with many
approved in the recent past and some in the pipeline. The European
launch of Emerge PTCA dilation catheter in the second quarter has
started contributing to the top line. Moreover, the product is
scheduled for its launch in the US in the third quarter of 2012. We
are encouraged to note that favorable data were presented at a
recent conference on the next generation Synergy DES with CE Mark
expected in late 2012. A limited market release is planned which
will be focused on building clinical evidence to support a full
European commercial launch in early 2014. Meanwhile the VANTAGE
study, a European clinical trial for the treatment of Parkinson's
disease using the Vercise deep brain stimulation system, is
scheduled for completion in 2013.
Against the backdrop of flattening or declining sales in
developed markets like the US and Europe, Boston Scientific is
gradually strengthening its presence in the emerging markets of
India and China that recorded over 40% growth on a combined basis
during the reported quarter. The company plans to invest
approximately $150 million in China, one of the world's fastest
growing and largest medical devices markets, 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. PCI
volume in the US market is likely to be in the low-single digits,
which could be offset by robust growth in the international
markets, especially in the emerging markets.
Despite the several initiatives undertaken by the company to
revive its top line, we remain cautious as the company's core
segments continue to witness several headwinds. As a result of the
continued trend of lower procedure volume and pricing pressure in
the US, the company's share in the defibrillator market dropped by
100 basis points compared to the year-ago period. The CRM market
will continue to remain sluggish in 2012, declining approximately
3−5% for the full year on a constant currency basis. The DES
business in the US continues to witness challenges of pricing
pressure, lower procedural volume and lower penetration rates.
However, the situation is improving gradually. As a result of these
headwinds, the company's top line continues to remain under
pressure.
Unfavorable currency movement has been a major dampener during
the quarter, which was also reflected in the earnings of other
important players such as
St Jude Medical
(
STJ
), and
Johnson & Johnson
(
JNJ
), among others.
Our recommendation is backed by a Zacks #3 Rank (Hold) in the
short term.
BOSTON SCIENTIF (BSX): Free Stock Analysis
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JOHNSON & JOHNS (JNJ): Free Stock Analysis
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ST JUDE MEDICAL (STJ): Free Stock Analysis
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