We recently reiterated our “Neutral” rating on Boston Scientific Corp. (BSX) with a target price of $6.50 based on a P/E of 23.2x our fiscal 2010 EPS estimate of $1.65. The company reported earnings per share of 16 cents in the first quarter of 2010, comfortably beating the Zacks Consensus Estimate of 8 cents per share. However, earnings were lower than 19 cents per share recorded a year ago.
Total revenue in the first quarter declined 3% year-over-year to $1,960 million. Revenues from Cardiovascular and Cardiac Rhythm Management (CRM), declined to $855 million (down 5% year-over-year) and $538 million (down 9%), respectively. Neurovascular revenue was consistent with the year-ago quarter while Endosurgery and Neuromodulation segments were up by 11% and 10% year over year.
Boston is the market leader in the stent market with TAXUS drug eluting stents (DES) having a 45% market share in the US and 38% globally. It compares favorably with its competitors such as St. Jude (STJ) and Medtronics (MDT), as it has strong pipelines in both its core DES and CRM businesses.
The recent approvals in the DES market have further enhanced the company’s product portfolio. However, the company continues to face tough competition from Abbot’s (ABT) Xience, which continues to expand its market share. Pricing pressures have also intensified in the DES market worldwide, proving to be a recent cause of concern.
We, however, find the restructuring activities undertaken by Boston as a positive factor. These initiatives would result in a gross reduction in operating expenses by an estimated $200 million to $250 million. The company intends to reinvest a portion of these savings into development related activities to help drive top-line growth in the future. Although Boston is progressing well with these cost-cutting initiatives and debt reduction, we are concerned about the lack of visibility on new product pipeline.
Overall, the fiscal 2010 guidance reinforces our neutral stance and keeps us on the sidelines awaiting more visibility on the company’s progress on the restructuring as well as the product front.
Boston tightened its fiscal 2010 revenue guidance range to $7.6 billion to $8.0 billion from $8.1 billion to $8.5 billion. It also decreased its earnings per share guidance range to a range of 50 cents to 60 cents versus the prior guidance of 62 to 72 cents. This was due to the ship hold and product removal actions involving the company’s implantable cardioverter defibrillator (ICDs) and cardiac resynchronization therapy difibrillators (CRT-Ds) during the first-quarter 2010 as well as product delays.
For the second-quarter 2010, the company expects revenue to be in the range of $1.825 billion to $1.925 billion, down 12% – 7% from $2.074 billion recorded in the second quarter of 2009.
Read the full analyst report on “BSX”
Read the full analyst report on “STJ”
Read the full analyst report on “MDT”
Read the full analyst report on “ABT”
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