Published on August 12th, 2020 📆 | 7028 Views ⚑0
Boston Scientific: This Healthcare Technology Company Is Poised To Thrive (NYSE:BSX)
The Healthcare sector has been one of the net winners so far this year. While its performance has not been as spectacular as that of the technology sector (QQQ), it still managed to beat the S&P 500. Using the Vanguard Health Care ETF (VHT) as a proxy, the healthcare sector has returned 5.5% on a YTD basis, which compares favorably against the 3.2% that the S&P 500 has returned over the same time frame.
While the entire healthcare sector has outperformed, there are some stock candidates that remain left behind. One such stock is Boston Scientific (BSX), which has posted a -13% return so far this year. I believe that BSX presents an attractive opportunity for growth at a reasonable price, and in this article, I evaluate what makes this stock a potentially good investment, so let’s get started!
(Source: Company website)
A Look Into Boston Scientific
Boston Scientific is a healthcare technology company whose aim is to transform patient lives through innovative medical solutions. It has a leadership position in providing minimally invasive technologies for the areas of endoscopy, cardiology, neurology, urology, and pelvic health. For example, one of its leading products, the Watchman, is the only FDA-approved heart implant that has been proven to reduce the risk of stroke in certain patients.
What I find attractive about Boston Scientific is its place at the crossroads of healthcare and technology. With the population of senior citizens expected to ramp up significantly over the next decade, I expect a substantially increased demand for the company’s innovative healthcare solutions. As seen below, according to the U.S. Census Bureau, the population of 65+ years old seniors is expected to grow by 30% over the next decade, which provides a strong tailwind for Boston Scientific.
(Source: US Census Bureau)
As with many other companies, COVID-19 has presented key risks and challenges to Boston Scientific’s business, as reflected by the 24% decline in revenue in the latest quarter. This was the result of patients putting off medical procedures and doctor’s office visits during the pandemic. While no investor likes to see revenue declines, I’m inclined to give the company a pass, as this was a result of circumstances that were largely out of management’s control. In addition, and unfortunately, disease progression amidst the general population doesn’t stop, and a postponement of procedures simply means more demand for the company’s products in the latter part of this year.
This is supported by an uptick in the sales of its leading products towards the end of the second quarter and into the month of July, as the CEO noted on the latest conference call (emphasis added by author):
“Turning to neuromodulation, second quarter organic revenue declined 43% and operational revenue declined 40% reflecting a higher rate of deliverability for spinal cord stimulation, and deep brain stimulation procedures. As a reminder, neuromod sales declined to 84% in April, however, the business is returning very quickly, with an 11% decline in June on an ADS basis versus past year, and continued improvement in July.
Turning to WATCHMAN we’ve seen consistent improvements at the April through, and importantly an accelerated recovery throughout the quarter and into July. We’ve also been encouraged by the resilience of WATCHMAN and we’re seeing a healthy mix of both rescheduled and new patient procedures.”
Looking at the financials, I’m impressed by the solid track record of growth in adjusted EPS. As seen below, adjusted EPS grew in the double-digits leading up to 2018, and the CAGR growth rate in the five years leading up to 2019 is 13%, which suggests that this is a strong growth stock. It should be noted that 2020 will not likely see the same level of growth as in the past, due to the postponement of medical procedures, and management decided not to provide guidance. However, I’m encouraged by the revenue uptick in July, which bodes well for the remainder of the year, and I expect growth to resume in 2021.
(Source: Created by author based on company financials)
Longer term, I see growth opportunities ahead in the area of medical telemetry as IoT technology becomes increasingly prevalent in the healthcare space. This is supported by the recent sales agreement that Boston Scientific signed with BioTelemetry (BEAT) for BSX’s Insertable Cardiac Monitor (ICM) System, which comes with remote programming as well as a dual-stage arrhythmia detection algorithm. In addition, the company also has promising growth opportunities in emerging markets, which has less market penetration than the U.S. As seen below, management expects emerging market growth to be in the 15% CAGR range.
(Source: Company Investor Presentation)
Turning to analyst estimates, it appears that the average rating is a 1.5, which implies a rating between a Buy and Strong Buy. Additionally, the average price target of $45 sits comfortably above where the shares are trading at now.
Lastly, I’m encouraged by what CFRA Research had to say about Boston Scientific’s valuation and second-half 2020 prospects in its latest research report:
“We think that shares of BSX, trading at 20.6x our 2021 EPS estimate, are attractively valued. In H2 2020, we expect to see the commercial launches of numerous new products (e.g. Watchman FLX, Acurate neo2, Lotus Edge, etc.), which are supportive of a strong long-term competitive positioning. We also continue to believe that BSX’s diversified and growing product portfolio, which we believe to be fairly recession resistant, makes the company a top supplier for hospitals.”
Boston Scientific is a leading healthcare technology company that produces innovative and minimally invasive medical products for the treatment of common diseases. COVID-19 has presented challenges due to the postponement of medical procedures. However, I see this as just being a bump in the road, as evidenced by the strong uptick in revenue towards the latter part of the second quarter and into July. Longer term, I see strong tailwinds from an aging population, prospects for medical telemetry, and strong growth in emerging markets. For these reasons, I rate the shares as a Buy.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.