Earnings Preview: Boston Scientific - Analyst Blog

BostonScientific (BSX) is scheduled to release its fourth quarter and fiscal 2010 earnings on February 1, 2011 after the market close. The company is expected to report EPS of 10 cents on revenue of $1.989 billion for the quarter, and EPS of 38 cents on revenue of $7.794 million for the fiscal year, according to the Zacks Consensus Estimate.

Previous Quarter Highlights

Boston Scientific reported an adjusted EPS of 12 cents, surpassing the Zacks Consensus Estimate of 6 cents. However, earnings were flat on a year-over-year basis. Adjusted EPS includes intangible asset impairment charges, restructuring-related charges and discrete tax items, but excludes after-tax amortization expense.

Revenues in the third quarter decreased 5% year over year to $1.92 billion driven by declines in both domestic (6% to $1.10 billion) and international markets (5% to $0.81 billion). Revenues according to the Zacks Consensus Estimate were $1.91 billion.

Defibrillators ship hold and product removal actions slowed the revenue growth rate by approximately 140 basis points or $28 million, as compared with the company's estimate of $44 million due to proper execution of the recovery plan.

For the fourth quarter of 2010, Boston Scientific expects net sales and adjusted EPS in the range of $1.93–$2.00 billion and 15–18 cents, respectively. Given the impact of the first three quarters of 2010, the company estimates ICD ship hold to have a negative impact of approximately $190 million for the full year 2010, compared with the previous estimate of $225 million.

Moreover, for fiscal 2010, Boston Scientific expects sales and adjusted EPS of $7.7-$7.8 billion and 63-66 cents, respectively.

Agreement of Analysts

Revisions in estimates have been insignificant over the last 30 days. Out of 25 analysts covering the stock, estimates have been lowered by 2 for both the fourth quarter and fiscal 2010. No upward revisions in estimates have taken place for these periods.

Pricing pressures especially in the markets of CRM and DES, and economic uncertainty which impacts elective surgeries have been the primary challenges in the recent past. Consequently, we expect Boston Scientific to update the current scenario in both the US and international market.

We remain concerned about the CRM segment that had witnessed sales hiccups for its cardiac resynchronization therapy defibrillators (CRT-Ds) and implantable cardioverter defibrillator (ICDs) in the first quarter of 2010. Although the resumption of CRT-Ds and ICDs sales in the second quarter helped the company regain its competitive edge, we await an update regarding the current status due to the tough competitive landscape created by the presence of players such as St. Jude (STJ) and Medtronic (MDT) in the ICD market.

In order to diversify its revenue stream, Boston Scientific has been restructuring its product portfolio, which includes divestment of its Neurovascular business and significant acquisitions. We expect more visibility regarding these initiatives during the quarter.

In January 2011, Boston Scientificcompleted enrollment in the EVOLVE trial, which is meant to evaluate its fourth generation Synergy coronary stent. The study enrolled 291 patients across 29 sites in Europe, Australia and New Zealand. With the completion of patient enrolment, the company might reveal the potential approval date of Synergy.

Magnitude of Estimate Revisions

For the fourth quarter, there has not been any revision in estimates while estimates for fiscal 2010 have gone up by a penny over the last 90 days. For fiscal 2011 as well, estimates have increased by a penny to 42 cents per share over the past 3 months.

Surprise

Going by past trends, we expect Boston Scientific to exceed estimates. The company exceeded expectations in the previous four quarters consecutively and has a positive four-quarter average of 66.59%. This means that on an average, Boston Scientific has topped the Zacks Consensus Estimate by 66.59% over the last four quarters.

Our Recommendation

Boston Scientific continues to focus on strategic initiatives to drive growth and profitability. In this respect, the recent divestiture of Neurovascular business has been a smart move, which enabled it to prepay a portion of the debt thereby improving capital structure. This, in turn, paves the way for other suitable acquisitions. We are also encouraged to note that the company is recovering from the ICD shipment issue and anticipates higher revenues over time as it continues to roll out Cognis and Teligen around the world.

The acquisition of Asthmatx and Atritech will enable the company to diversify its revenue stream away from CRM and Cardiovascular areas. However, we continue to remain concerned with its core business where Boston is witnessing significant pricing pressure and loss of market share. Moreover, economic uncertainty is impacting procedure volume.

We currently have a ‘Neutral' recommendation on the stock.

 
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
 
MEDTRONIC (MDT): Free Stock Analysis Report
 
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
 
Zacks Investment Research