Boston Scientific
BSX (NYSE: BSX) reported its Q3 results last month, with revenues and earnings beating the street estimates. However, we believe BSX stock has little room for growth, as discussed below. The company reported revenue of $3.5 billion and adjusted earnings of $0.50 per share, compared to the consensus estimates of $3.4 billion and $0.48, respectively. In this note, we discuss Boston Scientific’s stock performance, key takeaways from its recent results, and valuation.
BSX stock has seen extremely strong gains of 55% from levels of $35 in early January 2021 to around $55 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. BSX is one of a handful of stocks that have increased their value in each of the last three years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 18% in 2021, 9% in 2022, and 14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 14% in 2023 – indicating that BSX underperformed the S&P in 2021.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector, including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BSX face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, BSX stock looks like it has little room for growth. We estimate Boston Scientific’s Valuation to be $58 per share, reflecting just a 10% upside from its current levels of $53. This represents a 29x P/E multiple for BSX based on adjusted earnings expectation of $2.00 per share in 2023. The 29x P/E ratio also aligns with the last four-year average for BSX.
Boston Scientific’s revenue of $3.5 billion in Q3 was up 11% y-o-y, primarily due to 12% growth in the Cardiovascular segment and an 11% rise in MedSurg sales. Boston Scientific’s acquisition of Apollo Endosurgery and a majority stake in Acotec has bolstered its top-line growth, a trend expected to continue. The company expects its full-year 2023 sales to be around $14.1 billion, up 11% y-o-y.
Boston Scientific’s operating margin expanded over 300 bps to 29% in Q3. Higher revenues and margin expansion resulted in adjusted earnings of $0.50 per share, up 16% y-o-y. The company raised its earnings outlook to be in the range of $1.99 and $2.02 versus its prior guidance of $1.96 to $2.00.
Looking forward, the company should continue to benefit from new product launches, including POLARx (Japan), Vercise, and XL valves. Furthermore, its recent acquisitions, including Baylis and Apollo, will further bolster its top-line growth. Its majority stake in Acotec will likely aid its future sales growth in China. That said, much of the positives appear to be priced in for Boston Scientific. It is already trading at 5.7x sales, close to its last five-year average of 5.9x.
While BSX stock looks like it has little room for growth, it is helpful to see how Boston Scientific’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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