Earnings Preview: Boston Scientific - Analyst Blog

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Boston Scientific ( BSX ) is scheduled to release its third quarter of 2012 earnings on Thursday, October 18, 2012, before the market opens. The company is expected to report earnings of 11 cents on revenue of $1.761 billion for the quarter, according to the Zacks Consensus Estimate.

As per the guidance provided for the third quarter results, Boston Scientific expects to report adjusted earnings of 8-11 cents on revenue of $1.725−$1.825 billion during the quarter.

Previous Quarter Highlights

Boston Scientific reported a net loss of $3.4 billion or $2.39 per share in the second quarter of 2012, a disappointing result from net income of $146 million or earnings of 10 cents per share in the year-ago period. This was primarily due to an estimated impairment charge of $3.405 billion or $2.38 per share related to the company's Europe, Middle East and Africa reporting unit. This segment was affected by the lower projected long-term growth rates due to macroeconomic factors and its impact on the European market.

After considering certain adjustments (other than amortization expense), earnings in the second quarter came in at 11 cents per share, in line with the Zacks Consensus Estimate and a penny below the year-ago quarter's adjusted earnings.

Revenues declined 7% year over year (5% at constant currency) to $1.828 billion during the second quarter of 2012, lagging the Zacks Consensus Estimate of $1.884 billion. Excluding the impact of divested businesses and at constant currency, net sales dropped 4%.

Agreement of Analysts

Estimate revision trends for the third quarter have been mixed. Over the last 30 days, out of the 19 analysts covering the stock, one was negative for the quarter, while one moved in the opposite direction. While estimate revision for 2012 has been insignificant with only one positive revision, the situation improved marginally for 2013. Three upward estimate revisions are countered by two downward revisions over the past month.

The cautious sentiment reflects the issues upsetting the company's core businesses of stents and defibrillators (contributing approximately 40% of sales) and the current economic uncertainties.

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 US defibrillator market remains an overhang for Boston Scientific and its peers, St Jude Medical ( STJ ) and Medtronic ( MDT ).The drug eluting stent ('DES') business in the US witnessed challenges due to pricing pressure, lower procedural volume, lower penetration rates and share losses from the launch of Medtronic's Resolute Integrity stent with April being affected the most.

However, stability is expected in the second half with the abatement of competitive product trialing, the launch of longer lengths of Promus Element Plus stent (32mm and 38mm) and trial data favoring Promus Element.

Magnitude of Estimate Revisions

For the third quarter and 2012, estimates have remained unchanged at 11 cents and 42 cents, respectively, over the last 30 days. For 2013 however, the consensus estimate increased by a couple of cents to the current level of 48 cents per share over the same timeframe.

Recommendation

Boston Scientific continues to focus on strategic initiatives to drive growth and profitability. These include strengthening its portfolio, targeting suitable acquisitions in areas of unmet medical needs and focus on emerging markets. We are encouraged by the recent US approval of its subcutaneous implantable cardioverter defibrillator, the S-ICD system.

Boston Scientific 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. This would cater to the Chinese market and help develop a training center for healthcare providers.

The company also recently announced the proposed acquisitions of Rhythmia Medical and BridgePoint Medical. While the former would strengthen the company's foothold in the electrophysiology ablation business, the latter would bring in a catheter-based system to treat coronary chronic total occlusions. We are impressed with Boston Scientific's recent acquisitions, which reflect its focus on new therapies to drive the top line.

We expect these factors to benefit the company over the long term and as such we have a Neutral recommendation on Boston Scientific. The stock retains a Zacks #3 Rank ("Hold") in the short term.


 
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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 OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BSX , MDT , STJ

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