Despite macroeconomic concerns, currency headwinds and related cost inflation, Boston Scientific Corporation BSX is seeing strength across target markets. The company is demonstrating growth backed by its category leadership strategy, which is fueled by innovation, clinical evidence generation and the strong execution power of the global team. The market is also upbeat about the recently closed acquisition of Axonics, which is expected to show high synergy benefits within the company’s Urology business.
Bolt Acquisition Deal Drives BSX Stock Close to 52-Week High
Boston Scientific stock is currently trading close to its 52-week high. In the past four trading sessions, the stock has consistently traded above $94.00 per share, closing at $95.65 yesterday. This is just shy of the company’s 52-week high of $97.13 reached on Jan. 8 following the company’s announcement of entering into a definitive agreement to acquire Bolt Medical, Inc. — an intravascular lithotripsy (IVL) advanced laser-based platform developer. The market seems to be encouraged by this strategic move by BSX. Upon completion, the acquisition will expand Boston Scientific’s cardiovascular portfolio with Bolt IVL — a complementary and differentiated calcium modification platform.
Over the past 30 days, the stock has gained 5.8% against the Zacks Medical Products industry’s 0.5% decline and the S&P 500's 3.9% dip. During this period, the Medical sector has declined 1.5%. Despite the challenges within the medical device space, the company continued to do well, banking on its above-market performances across several of its core segments, fueled by innovation, clinical evidence generation and strong marketing strategies.
Notably, BSX has also outperformed its direct peers and MedTech behemoths like Abbott ABT and Medtronic MDT in a month. During the said time frame, ABT gained 0.4%, while MDT rose 4.9%.
30-Day Price Comparison
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BSX Ahead of Moving Averages Too
Going by the technical indicators, the stock is trading above its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. In fact, since Nov. 25, 2022, its 50-day moving average has been ahead of the 200-day moving average. This technical strength reflects the market’s confidence in Boston Scientific’s financial health and fundamentals. This can be good news for BSX investors, signaling “support” for a further uptrend.
BSX Above the 50 and 200-day SMA
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Market Share Gains Continue Within MedSurg
Boston Scientific is consistently gaining market share within its MedSurg (comprising 38% of the company’s total revenues in 2023) segment. The Endoscopy business within MedSurg is gaining from strong worldwide demand for its broad range of gastrointestinal (GI) and pulmonary treatment options. Particularly, the company gained market share by banking on the above-market growth of AXIOS and Exalt D in the third quarter of 2024. The company also registered strong double-digit growth in the Endoluminal Surgery franchise and recently received a Category 1 CPT code for the ESG weight loss procedure, which is expected to increase momentum within this business.
Within Urology, Boston Scientific continues to expand its market share globally. The company’s stone management and prosthetic urology franchises are growing well, led by the strong performances of Rezum and SpaceOAR. Boston Scientific, in the third quarter, launched LithoVue Elite and the Tenacio Pump with AMS 700 device.
Within Neuromodulation, Boston Scientific’s pain business is gaining traction despite softness in the Spinal Cord Stimulation (SCS) business. In the third quarter, the brains franchise returned to low double-digit growth in the United States, supported by de novo implants and competitive replacements.
Value-Added Acquisitions Continue to Aid Growth
We have already talked about the recently inked Bolt Medical deal. We are also impressed with Boston Scientific’s other recent acquisitions that have added numerous products (though many are under development) with immense potential. The company’s recently completed strategic buyouts include the acquisition of Silk Road Medical for $1.16 billion. This acquisition is expected to help the company progress in vascular medicine, where Silk Road has revolutionized stroke prevention and the treatment of carotid artery disease. With the $3.7-billion Axonics acquisition, Boston Scientific expects to expand its differentiated technologies portfolio within Urology.
BSX Has Impressive Liquidity and Solvency Position
Boston Scientific’s strong liquidity position should allow it to meet its near-term debt obligations. The company apparently looks quite burdened by debt, with total debt (including the current portion) of $10.89 billion as of Sept. 30, 2024. The company’s cash and cash equivalents were $2.5 billion at the end of the third quarter of 2024. Although the quarter’s total debt was much higher than the corresponding cash and cash equivalent level, the short-term payable debt of $1.65 billion is lower than the short-term cash level. The company’s times interest earned ratio is also at an impressive level of 8.6, indicating that BSX is well capable of paying the interest on its business debts on time.
Challenges Persist
The industry-wide trend of difficult macroeconomic conditions in the form of geopolitical pressure leading to disruptions in economic activity, global supply chains and labor markets is creating a challenging business environment for Boston Scientific. International conflicts, including the Russia-Ukraine war and the tension between China and the United States, have increased international trade-related complications for Boston Scientific as it has huge international exposure. Further, volatile financial market dynamics and significant volatility in price and availability of goods and services are putting pressure on Boston Scientific’s profitability. With sustained macroeconomic pressure, the company may struggle to keep its operating expenses in check.
In the third quarter of 2024, the company reported a 19.2% rise in the cost of products sold, leading to a mere 5 basis points expansion in gross margin. Further, there was a 25.8% rise in selling, general and administrative expenses, resulting in a 123-basis point contraction in operating margin.
Expensive Valuation
This is evident from the Price/Earnings (P/E) ratio. BSX shares currently trade at 34.30X forward P/E, near their five-year high of 36.31X and much above the median of 24.81X. The stock is also trading significantly above the industry’s 20.79X. The company is also trading at a significant premium to other industry players like Abbott (21.89X) and Medtronic (14.85X).
This suggests that investors may be paying a higher price relative to the company's expected earnings growth.
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Our Take
BSX continues to outperform its peers in a challenging market for medical devices, banking on its continued efforts to optimize business to drive sustainable profitability and achieve stable liquidity. However, the ongoing hiccups in the form of international trade challenges and supply chain issues are limiting this Zacks Rank #3 (Hold) stock’s near-term gains. The stock’s stretched valuation too suggests that investors may be paying a higher price relative to the company's expected earnings growth. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains, providing a better entry point.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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