On Sep 4, we upgraded medical device major Boston Scientific Corporation (BSX) to a Zacks Rank #2 (Buy). The upgrade came on the back of encouraging second-quarter 2013 results as well as the company’s multiple initiatives to expand electrophysiology (:EP) division.
Why the Upgrade?
The US defibrillator and stent markets have remained major overhangs over the past several quarters. Despite several initiatives undertaken by the company to revive its top line, we remain cautious as its core segments, implantable cardioverter defibrillator and DES (contributing 35% of sales) are still taking a toll on the numbers.
Despite the challenging economic conditions, a competitive environment, pressure on core segments, and a larger-than-expected currency headwind, Boston Scientific posted solid second-quarter 2013 results, which beat on both lines. Margin expansion is another upside. Based on these encouraging numbers, the company raised its 2013 revenues and EPS guidance.
Moreover, Boston Scientific is resorting to all available means in order to return to growth. The company has taken several steps toward strengthening its foothold in the $2.5 billion global electrophysiology market. Last month, the company gained approval from the Food and Drug Administration (:FDA) for its IntellaTip MiFi XP catheter. In addition, its other EP device Zurpaz 8.5F steerable sheath managed to gain 510(k) clearance.
In July, the company announced its plan to acquire Bard EP, the electrophysiology business of C.R. Bard (BCR), for $275 million. The acquisition is expected to close in the second half of 2013.
We are optimistic about Boston Scientific’s recent endeavors and expect these to create a competitive edge for the company in the fast-growing electrophysiology market. This strategy is significant given the poor performance of its core segments of stents and defibrillators.
We are also encouraged by the focus on emerging markets, especially India and China. Boston Scientific plans to invest approximately $150 million in China over the next 5 years to build a local manufacturing operation.
The stronger-than-anticipated results triggered an uptrend in the Zacks Consensus Estimate, as analysts became more constructive on the stock’s future performance. The Zacks Consensus Estimate increased 3.0% to 69 cents for 2013 and 4.1% to 76 cents per share for 2014 in the past 60 days.
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