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Boston Scientific's Emerging Markets Grow Amid Currency Woes

Zacks Equity Research

On Apr 11 2016, we issued an updated research report on leading medical devices company, Boston Scientific Corporation BSX. The stock currently carries a Zacks Rank #4 (Sell).

Boston Scientific’s shares gained 4.45% in the past three months. However, it remained below the Zacks categorized Medical - Products industry’s gain of  5.68%.

While Boston Scientific’s inorganic means to strengthen its core businesses (including the latest decision to buy Switzerland-based Symetis), investment in new technologies and global markets buoy optimism, foreign exchange headwinds and sluggish defibrillator performance continue to pose challenges.

Although, in the last reported fourth quarter, the company witnessed a rebound in the defibrillator’s performance, sustainability of this growth is doubtful owing to the dull worldwide sales which inched up 0.9% year-over-year..

In the fourth quarter of 2016, foreign exchange headwind adversely impacted the company’s top line by $20 million and gross margin by 120 basis points. With the trend likely to linger, in 2017 as well, Boston Scientific expects unfavorable foreign exchange headwind of $125 million on revenues and 700 basis points or 8 cents per share on earnings. Adjusted gross margin for the full year assumes a negative foreign exchange impact of 50 basis points.

On a positive note, we are looking forward to the company’s newly implemented global restructuring plan. The company has already chalked out several key activities under the program which include strengthening global infrastructure through evolving global real estate and workplaces, developing global commercial and technical competencies, enhancing manufacturing and distribution expertise in certain regions, and continuing implementation of the  plant network optimization (PNO) strategy.

These activities are expected to be completed by the end of 2018. The company expects that the program will reduce gross annual pre-tax operating expenses by approximately $115 million–$150 million by the end of 2020 as program benefits are realized. Boston Scientific also expects a portion of the program’s savings to be reinvested in strategic growth initiatives.

The company is also gaining strong ground in the emerging market. In the fourth quarter of 2016, business from the emerging markets registered 17% organic growth rate, much ahead of the company’s target of reaching 15% of sales by 2017 from 8% in 2013. This encouraging performance was driven by 21% growth in China. The company expects to perform better in China in the long run, banking on the recent approval of SYNERGY.

Key Picks

Better-ranked stocks in the broader Medical space include Inogen, Inc. INGN, ZELTIQ Aesthetics, Inc. ZLTQ and Hill-Rom Holdings, Inc. HRC. While Inogen sports a Zacks Rank #1 (Strong Buy), ZELTIQ Aesthetics and Hill-Rom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen gained 52.9% in the last one year, compared with the S&P 500’s gain of 13%. The company reported a stellar four-quarter positive average earnings surprise of over 49.08%.

ZELTIQ Aesthetics surged 85.9% in the last year, compared to the S&P 500’s gain. Its four-quarter average earnings surprise was a positive of 28.75%.

Hill-Rom gained over 33.9% in the past one year, better than the S&P 500 mark. It posted a trailing four-quarter positive average earnings surprise of 12.03%.

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