Watchman In Focus As Boston Scientific Reports Its Q2

Boston Scientific (NYSE: BSX) is scheduled to report its Q2 2024 results on Wednesday, July 24. We expect the company to report revenues and earnings in line with the consensus estimates. A rise in elective surgeries performed and market share gains for some of its products will likely aid the company’s top-line growth. Although we expect Boston Scientific to navigate well in Q2, our forecast indicates that BSX stock is fully valued, as discussed below. Our interactive dashboard analysis of the Boston Scientific Earnings Preview has additional details.

Firstly, let us look at the company’s stock performance. BSX stock has seen extremely strong gains of 125% from levels of $35 in early January 2021 to around $80 now, vs. an increase of about 45% for the S&P 500 over this roughly three-year period. BSX is one of a handful of stocks that have increased their value in each of the last three years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 18% in 2021, 9% in 2022, and 25% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BSX underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BSX face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think BSX stock is fully priced. We estimate Boston Scientific’s Valuation to be $70 per share, around 10% below its current levels of $80. At its current levels, BSX stock is trading at 34x its adjusted earnings expectation of $2.34 per share in 2024. The 34x P/E ratio is slightly higher than the 28x average over the last five years.

Looking at the previous quarter, Boston Scientific’s revenue of $3.9 billion, was up 14% y-o-y, with revenue growth seen across all segments. While the Cardiovascular segment saw a 16% rise in sales, MedSurg sales were up 10%. The adjusted EPS came in at $0.56, 22% higher than the $0.47 figure reported in the prior-year quarter. The company raised its full-year outlook to 11% to 13% sales growth, from its prior-guidance of 8.5% to 9.5% growth. The company also raised its full-year adjusted EPS outlook to be in the range of $2.29 to $2.34, versus its earlier estimate of $2.23 to $2.27 range.

Coming to the latest quarter, a rise in global procedure volume will likely bode well for Boston Scientific. Its new product launches in Asia Pacific should bolster its top-line growth. The Watchman product line has driven the Cardiovascular growth lately for Boston Scientific, a trend expected to continue in the near-term. However, higher costs may weigh on the operating margin. Overall, Boston Scientific looks like it will navigate well in Q2, but we think that the positives for the stock appear to be priced in.