Earlier this month, Boston Scientific (BSX) named Michael Mahoney as the President of the company effective October 17, 2011. Mahoney, the Worldwide Chairman of the Medical Devices and Diagnostics Group of Johnson & Johnson (JNJ) is expected to occupy the post of CEO of Boston Scientific from November 1, 2012.
In May 2011, Ray Elliott had announced his intention to step down as the President and CEO and confirms to do so on October 17, 2011. Subsequently, Hank Kucheman, the Executive Vice President and Group President of the Cardiology, Rhythm and Vascular will serve as the interim CEO until Mahoney assumes the role. Ray Elliott will be able to assist Kucheman and Mahoney until he retires at the end of 2011.
During the most recent quarter, revenues increased 2.4% year over year to $1.975 billion. However, excluding the impact of foreign currency and sales from divested businesses, net sales remained unchanged. The company also announced a restructuring program to increase productivity through zero-based budgeting and Emerging Market Initiative. The program is expected to result in $225-$275 million of gross annual savings exiting 2013. About 1,200-1,400 positions will be reduced globally (through employee attrition and targeted headcount reduction) as a part of this program and result in $155-$210 million of pre-tax charges.
During Ray Elliott’s tenure, (since July 2009), Boston Scientific achieved several milestones. These include adopting Priority Growth Initiatives to address critical and unmet future patient needs, creation of robust pipeline and focusing on emerging markets. Moreover, the company was able to reduce its debt burden, improve liquidity and generate robust free cash flow of more than $1.2 billion annually.
At present Boston Scientific is witnessing several challenges as its core businesses consisting of stents and defibrillators are witnessing significant pricing pressure and loss of market share. As a result, the new CEO will have a few daunting tasks ahead. Moreover, uncertainty remains regarding the strategy he would adopt to turn around the company.
We currently have an Outperform recommendation on the stock, which also corresponds with the Zacks #2 Rank (Buy) in the short term. The company faces stiff competition from players such as Medtronic (MDT) and St Jude Medical (STJ), both carrying Zacks #3 ranks (Hold) along with Neutral recommendations.
