Boston Scientific’s (BSX – Free Report) expanding business in the emerging markets, accretive acquisitions and significant progress in its restructuring initiatives buoy optimism. However, strong competitors in the large medical device market pose a tough challenge for Boston Scientific. The stock carries a Zacks Rank #3 (Hold).
Over the past year, Boston Scientific has outperformed the industry it belongs to. The stock has gained 46% against the industry’s 20.7% decline.
Boston Scientific ended the first quarter of 2023 with better-than-expected earnings and revenues. The company registered a year-over-year improvement in organic sales, indicating a strong rebound in the legacy business even amid several macroeconomic issues. Organic revenues at each of its core business segments and geographies were up in the reported quarter.
Geographically, the United States grew 13% year over year operationally, inclusive of a 140-basis point tailwind from the Baylis acquisition with notable organic strength across each business unit. Europe, Middle East and Africa (EMEA) grew 20% on an operational basis, with nearly every market growing in double digits in the quarter. This strong above-market growth was driven by Boston Scientific’s diverse portfolio, new launches and commercial execution with healthy underlying market demand.
The company remains excited about the rest of the year and expects to continue to outpace its peers within the EMEA market. Asia Pacific grew 15% operationally, with broad-based strength across all major markets and business units. During the first quarter, the company received health sciences authority approval for FARAPULSE in Singapore. In Japan, first-quarter growth was fueled by the launch of AGENT Drug-Coated Balloon. China also grew in double digits in the first quarter, ahead of the company’s expectations, on solid procedural demand as hospitals worked through COVID-delayed procedures.
The raised 2023 guidance seems bullish, indicating that the company is well-poised to handle the industry-wide trend of currency headwinds and global inflationary pressure.
On the flip side, continued foreign exchange headwinds largely offset Boston Scientific’s top-line performance. During the first quarter of 2023, the company’s reported revenue growth reflected a $88 million headwind from foreign exchange with continued volatility in foreign exchange rates throughout the quarter. On an operational basis, the company’s revenues witnessed a 290-basis point headwind from foreign exchange.
Further, Boston Scientific incurred significant cost pressure. There was an 8.9% rise in the cost of products sold. Selling, general and administrative expenses rose 14.6%, while research and development expenses rose 5.6%. Considering the industry-wide trend, Boston Scientific continues to expect 2023 gross margin to include a similar level of macroeconomic and supply chain headwinds.
Meanwhile, the presence of a large number of players has made the medical devices market highly competitive. The company participates in several markets, including Cardiovascular, CRM, Endosurgery and Neuromodulation, where it faces competition from large, well-capitalized companies such as Johnson & Johnson, Abbott, Medtronic, Stryker, Smith & Nephew and Edwards Lifesciences, apart from several other smaller companies.
Key Picks
Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX – Free Report) , Merit Medical Systems, Inc. (MMSI – Free Report) and Penumbra (PEN – Free Report) .
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic has gained 8.9% compared with the industry’s 6.5% rise in the past year.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.
Merit Medical has gained 45.5% compared with the industry’s 11.7% rise over the past year.
Penumbra carrying a Zacks Rank #2 at present, has gained 158% in the past year. The Zacks Consensus Estimate for Penumbra’s earnings per share (EPS) has remained constant at $1.56 for 2023 and $2.56 for 2024 in the past 30 days.
PEN’s earnings beat the consensus mark in each of the trailing four quarters, the average surprise being 109.42%. In the last reported quarter, the company registered an earnings surprise of 109.09%.
