No Fundamental Reason For Boston Scientific Shares' Underperformance, RBC Upgrades Stock

Shares of Boston Scientific Corporation BSX have lost more than 6 percent over the past six months, which has at least one analyst suggesting investors take advantage of the underperformance.

The Analyst

RBC Capital Markets' Glenn Novarro upgraded Boston Scientific's stock from Outperform to Top Pick with an unchanged $31 price target.

The Thesis

There is no "fundamental foundation" to explain why Boston Scientific's stock has underperformed the broader market, Novarro said in a note. As such, the stock now boasts the best risk to reward profile among the analyst's entire large-cap coverage. The stock could see a catalyst as soon as Feb. 1 when the company releases its fourth quarter earnings report which will likely eliminate investor concerns around 2018 guidance.

Specifically, the company's management team is likely to reaffirm a 5 to 7 percent revenue growth forecast for 2018, the analyst said. This figure is consistent with what was offered during the 2017 Investor Day event in June. However, recent product approvals in Rhythm Management and MedSurg could outperform and see a growth rate of 6 to 7 percent in 2018. This is especially encouraging when factoring in management's 5 to 6 percent initial guide.

Meanwhile, Wall Street's consensus EPS estimate of 2018 of $1.38 appears low and implies only a 4 percent year-over-year growth over, the analyst said. Also, foreign exchange rates are likely to help increase the company's revenue and EPS in the first half of 2018.

"BSX has the second highest organic revenue growth forecast in our large-cap coverage, and yet its shares trade in-line or at a discount to shares of companies with lower organic revenue and EPS growth," Novarro concluded.

Price Action

Shares of Boston Scientific gained 2.5 percent Friday to $25.97.

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