On May 11, 2016, we issued an updated research report on leading medical devices company, Boston Scientific Corporation BSX. The stock currently carries a Zacks Rank #2 (Buy).
Despite challenging economic conditions, a competitive environment and severe currency headwinds, Boston Scientific managed to post a better-than-expected first-quarter 2016, with respect to both earnings and revenues. While severe foreign exchange headwinds continue to pose a major challenge, we are also concerned about the disappointing performance of the company’s core CRM segment with worldwide pacemakers and defibrillator sales declining over the past several quarters.
Boston Scientific continues to strengthen its core businesses and invest in new technologies and global markets, which accounted for the sales upside across most of its businesses and regions in the reported quarter. According to Boston Scientific, its Plant Network Optimization (PNO) strategy has simplified its manufacturing plant structure by shifting certain production lines among facilities. The full benefit of PNO, which has been completed lately, should start to reflect in the company’s Rhythm Management adjusted operating margin through the second half of 2016.
An important aspect of the company’s growth strategy is to continue pursuing development opportunities outside the U.S. by expanding global presence, inclusive of the emerging markets. In the first quarter of 2016, business from the emerging markets registered a robust 21% organic growth rate, ahead of the company’s target of reaching 15% of sales by 2017 from 8% in 2013. This encouraging performance was driven by 19% growth in China in the reported quarter.
Boston Scientific hopes to sustain its strong overall international performance taking into consideration several key new product launches that are in the early stages of their rollout. The company is also optimistic about its core cardiology segment which is gradually stabilizing with growth witnessed in the BRIC nations.
We also look forward to Boston Scientific’s recent collaboration with Mayo Clinic, a renowned nonprofit organization that works on medical research and education. The collaboration agreement states that Boston Scientific engineers and Mayo Clinic physicians have already been working together to develop new medical technologies in areas such as interventional cardiology, heart rhythm management, endoscopy, neuromodulation, urology and pelvic health.
Meanwhile, sluggish CRM sales over the recent past continue to weigh on the stock. The first quarter was no exception, with a disappointing performance in the company’s worldwide pacemakers and defibrillator sales. Although Boston Scientific currently expects a rebound in its CRM performance in the second quarter and second-half 2016, we remain on the sidelines based on the challenges still being faced in this business, especially in the U.S.
Nevertheless, Boston Scientific has a strong pipeline of products under development, the launch of which should drive the top line, going ahead. We are optimistic about the company’s gradually improving performance in Interventional Cardiology, led by an innovative portfolio and robust execution by global commercial teams.
Key Picks in the Sector
Some other well-ranked medical product stocks that warrant a look include NuVasive, Inc. NUVA, LeMaitre Vascular, Inc. LMAT and OraSure Technologies, Inc. OSUR. All three stocks hold the same Zacks Rank as Boston Scientific.
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