Why Is Boston Scientific (BSX) Up 2.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Boston Scientific (BSX). Shares have added about 2.3% 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 drivers.

Boston Scientific Sees Growth In All Lines in Q1

Boston Scientific posted adjusted earnings per share (EPS) of 35 cents in the first quarter of 2019, up 6.1% from the year-ago quarter. However, the same missed the Zacks Consensus Estimate by a penny. Meanwhile, the figure matched the lower-end of the company’s guided range of 35-36 cents.

Reported EPS in the first quarter was 30 cents compared with earnings of 21 cents per share in the year-ago quarter.

Revenues in Detail

Revenues in the first quarter were up 4.8% year over year on a reported basis, up 7.8% 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 $2.49 billion. Revenues missed the Zacks Consensus Estimate by 1.9%.

In the first quarter, the company achieved 7.1% growth in the United States on a reported basis (same operationally), witnessed a 0.3% dip in the Europe, Middle East and Africa region (up 7.9%); up 5.3% in the Asia Pacific region (up 10.1%), up 0.3% in Latin America and Canada (up 7.5%) and up 13.3% in the emerging markets (up 22%).

Segmental Analysis

Boston Scientific currently has three global reportable segments: Cardiovascular, Rhythm and Neuro and MedSurg.

The company generates maximum revenues from Cardiovascular. Sales from its subsegments — Interventional Cardiology and Peripheral Interventions — were $661 million (up 4.8% year over year organically) and $311 million (up 11.2%), respectively, in the first quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 2.6% year-over-year increase in organic sales to $491 million in the reported quarter.

Electrophysiology sales went up 10% year over year organically to $79 million.

Neuromodulation sales rose 12.4% year over year organically to $186 million.

Other segments like Endoscopy and Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $440 million (up 8.1% organically) and $326 million (up 4.6%), respectively.

Margins

Gross margin in the first quarter contracted 103 basis points (bps) year over year to 70.7% due to an 8.6% rise in cost of products sold.

Adjusted operating margin, however, expanded 11 bps to 23.9% in the reported quarter. During the quarter, selling, general and administrative expenses inched up a nominal 1% to $869 million while research and development expenses rose 7.3% to $280 million. Whereas royalty expenses of $16 million declined 11.1% from the previous quarter.

Guidance

Boston Scientific has provided an update on its earlier-provided outlook for 2019. The company currently projects revenue growth in the range of 7-8% on a reported basis (from the earlier-provided view of 7-9%) and around 7-8% on an organic basis (from the past projection of 7-8.5%). The Zacks Consensus Estimate for 2019 revenues is pegged at $10.63 billion.

The company has narrowed its 2019 adjusted EPS expectation to a band of $1.54-$1.58 from the former forecast of $1.53-$1.58. The Zacks Consensus Estimate of $1.56 is within the guided band.

The company also provided its second-quarter 2019 financial outlook. It projects revenue growth in the range of 5-7% on a reported basis and around 6-7% on an organic basis.  Adjusted EPS is expected in the band of 37-39 cents. The consensus mark for EPS stands at 39 cents while the same for revenues is $2.67 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Boston Scientific has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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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