Boston Scientific Corporation (BSX) has confounded the investment community in 2013, doubling in value and becoming the fifth best performing stock in the S&P 500 this year. The Natick, Mass.-based medical devicemaker has experienced a string of positive developments this year. News has been especially good so in the last month, as the company issued a very healthy second quarter earnings report and received a positive review of an asthma treatment device in the influential Journal of Allergy and Clinical Immunology.
Boston’s banner year stands in stark contrast to the last decade, that has seen the stock plummet from highs just shy of $45 in 2004 to a low of $5.04 a share in Oct 2012. While Boston has unquestionably experienced a rally this year, not everyone agrees it will continue, with some analysts speculating the Boston renaissance will draw to a close very soon indeed.
But who’s right? Here are the bears' and the bulls' cases for the rebounding healthcare stock:
Boston Scientific: the Bull’s Case
Growing Electrophysiology Division
In August the Food and Drug Administration gave Boston a major approval in their electrophysiology division concerning a device that treats atrial flutter, which affects almost 1 million Americans. Electrophysiology might only represents7 percent of the company’s sales, but Boston is emerging as a market leader in that division and should see sales increase even more.
Emerging Market Penetration
Boston is investing heavily in emerging markets, especially the fast-growing Chinese market. Boston has sunk approximately $150 million into developing their presence in the East. Local manufacturing centers in China will ease their transition to that market, and boost Boston’ sales in that country significantly.
The devicemaker, aside from their burgeoning electrophysiology department mentioned earlier, have had a good run with their product line as of late. Their asthma treatment device the Alair Bronchial Thermoplasty System has already garnered approval and solid reviews, but it’s the slew of products in the pipeline that have investors excited the most.
The company boasts the best selling drug-eluding heart stent outside the US (Japan excluded) with the Taxus Liberté, and an update of that product currently in development should prove to be a big seller. In June the company also received a very positive report for the efficacy of their Deep Brain Stimulation device that treat symptoms associated with Parkinson’s.
Boston Scientific: the Bear’s Case
The Bread and Butter is Going Stale
While nascent divisions like electrophysiology develops nicely, the core of Boston’s main product line looks to be stagnating. Cardiology, which accounts for 57 percent of Boston’s revenue, hasn’t been growing at nearly the rate of smaller divisions like endoscopy (tiny cameras that aid doctors during surgery.) Further, flagship products like the drug-eluding Taxus mentioned earlier, are facing stiffer competition from bare-metal stents that are cheaper and arguably nearly as effective.
A Worrying Forward P/E
Boston currently sports a forward profits-to-earnings ratio of 23.66. While this wouldn’t be of concern to, say, a cutting-edge tech company, for a company like Boston it is. For comparison, Boston competitors St Jude’s Medical (STJ) and Medtronic, Inc. (MDT) have forward PE ratios of 13.46 and 13.15, respectively.
The Competition is Heating Up
The subtext of the forward P/E ratios of Boston’s competitors is the fact that the future looks rosy for them – which will come at the expense of Boston. While Boston is expected to ring in more than $900 million in 2017, that will represent a slower rate of growth than their competitors. St. Jude is expected to introduce a pacemaker into the US sometime next year, and in May Medtronic launched a cardiac resynchronization device that will compete directly with Boston in their main revenue center, cardiology.