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Boston Scientific (BSX) Up 1.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Boston Scientific (BSX). Shares have added about 1.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Boston Scientific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Boston Scientific Sees Growth In All Lines in Q2

Boston Scientific posted adjusted earnings per share (EPS) of 39 cents in the second quarter of 2019, down 4.9% from the year-ago quarter. However, the same exceeded the Zacks Consensus Estimate by a penny. Meanwhile, the figure matched the upper-end of the company’s guided range of 37-39 cents.

Reported EPS in the second quarter was 11 cents compared with earnings of 40 cents per share in the year-ago quarter.

Revenues in Detail

Revenues in the second quarter rose 5.6% year over year reportedly, up 8% on an operational basis (at constant exchange rate or CER) and up 6.3% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions) to $2.63 billion. Revenues missed the Zacks Consensus Estimate of $2.64 billion by 0.34%.

In the second quarter, the company achieved 6% growth in the United States on a reported basis (same operationally); 2.3% improvement in the Europe, Middle East and Africa region (up 8.3%); 8.9% growth in the Asia Pacific zone (up 13.2%), 4.5% rise in Latin America and Canada (up 9.3%) and 12.3% increase in the emerging markets (up 20%).

Segmental Analysis

Boston Scientific currently has three global reportable segments: Cardiovascular, Rhythm and Neuro plus MedSurg.
The company generates maximum revenues from Cardiovascular. Sales from its subsegments — Interventional Cardiology and Peripheral Interventions — were $706 million (up 8.1% year over year organically) and $320 million (up 8.2%), respectively, in the second quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 2.8% year-over-year increase in organic sales to $498 million in the reported quarter.

Electrophysiology sales went up 9.5% year over year organically to $84 million.

Neuromodulation sales inched up 0.1% year over year organically to $204 million.

Other segments like Endoscopy and Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $470 million (up 8.4% organically) and $348 million (up 6.1%), respectively.

Margins

Gross margin in the second quarter expanded 87 basis points (bps) year over year to 71.2% despite a 2.6% rise in the cost of products sold.

Adjusted operating margin grew 10 bps to 23.1% in the reported quarter. Selling, general and administrative expenses increased 9.3% to $968 million while research and development expenses rose 1.8% to $280 million in the period. Meanwhile, royalty expenses of $17 million are flat year over year.

Guidance

Boston Scientific reaffirmed its earlier-provided revenues and adjusted EPS outlook for 2019. The company once again projects revenue growth in the 7-8% range on a reported basis as well as organically. The Zacks Consensus Estimate for 2019 revenues is pegged at $10.57 billion.

The company also reiterated its 2019 adjusted EPS expectation in the band of $1.54-$1.58. The Zacks Consensus Estimate of $1.55 is within the guided range.

The company also provided its third-quarter 2019 financial outlook. It envisions revenue growth in the range of 8-10% on a reported basis and at around 7.5-9% on an organic basis. Adjusted EPS is anticipated within 37-39 cents. The consensus mark for EPS stands at 39 cents while the same for revenues is pinned on $2.62 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Boston Scientific has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Boston Scientific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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