Will Boston Scientific Leave You Heartbroken?

With shares of Boston Scientific Corporation (NYSE:BSX) trading at around $6.35, is BSX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

surgery-medicine-health care-doctors copyBoston Scientific is a medical device company that operates in many areas, but nearly 70 percent of its business comes from the cardiac area. Boston Scientific has recently had to deal with recalls and litigation related to implantable stents. This hasn’t been the primary reason for poor stock performance over the past few years, but it hasn’t helped, either. However, now there are two factors working in the company’s favor. One, St. Jude Medical’s (NYSE:STJ) defibrillator leads have been deemed inadequate by the FDA. Two, Boston Scientific purchased a company called Cameron Health. This is important because Cameron Health has defibrillators without leads that go to the heart. Basically, it’s non-invasive. If this technology works as well as some think it will, then the upside potential for Boston Scientific is significant. Apparently, there are many people out there who are optimistic about the company’s potential. There has been big call volume as well as new insider purchases.

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Boston Scientific is also focused on cutting costs, but this may be a negative if you’re a true patriot. The company will cut jobs in the United States and add jobs in China. This will be done for cheaper labor, which will help margins.

Let’s take a look at some important numbers for Boston Scientific.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio is normal, but the balance sheet is in negative territory. As stated earlier, the company is focused on cutting costs, which should help reduce debt.  

Debt-To-Equity

Cash

Long-Term Debt

BSX

0.62

$352.00 Million

$4.26 Billion

STJ

0.53

$1.05 Billion

$2.52 Billion

MDT

0.67

$2.68 Billion

$11.45 Billion

 

T = Technicals on the Stock Chart Are Strong

Boston Scientific hasn’t performed well over the past three years as a whole, but the past year has been impressive. Over the past year, Boston Scientific has outperformed St. Jude Medical and Medtronic (NYSE:MDT). That said, Boston Scientific is the only one of the three that doesn’t pay a dividend.

1 Month

Year-To-Date

1 Year

3 Year

BSX

11.90%

10.73%

14.95%

-33.28%

STJ

10.04%

6.95%

6.22%

4.18%

MDT

5.30%

7.46%

16.92%

3.27%

 

At $6.35, Boston Scientific is trading above all its averages.

50-Day SMA

5.59

100-Day SMA

5.58

200-Day SMA

5.66

 

E = Earnings Have Been Improving  

While annual revenue has left a lot to be desired, EPS has been steadily improving. Better yet, analysts expect that trend to continue.

2007

2008

2009

2010

2011

Revenue ($)in billions

8.36

8.05

8.19

7.81

7.62

Diluted EPS ($)

-0.33

-1.36

-0.68

-0.70

0.29

 

When we look at last quarter on a YoY basis, we see a decrease in revenue and earnings. At least the bar has been set low.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

1.87

1.85

1.87

1.83

1.74

Diluted EPS ($)

0.09

0.07

0.08

-2.51

-0.48

T = Trends Support the Industry

The industry has had to deal with some difficult challenges over the past few years, but it looks as though the industry as a whole is turning a corner. It only takes one innovative device to change the entire landscape. If that device is effective and sells well, then every other company in the industry will follow suit with something similar. We could be in the preliminary stages of that trend now.  

Conclusion

Boston Scientific has terrible margins, an ROE of -43.84 percent, too much debt, and poor revenue and earnings growth. In most cases like these, it would be recommended that you stay far, far away. However, the upside potential for Boston Scientific is too great to ignore. It’s still a risky play, but big call volume, insider purchases, and an opportunity to take significant market share away from competitors, make Boston Scientific an OUTPERFORM.

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