What’s Behind The 2x Rise In Boston Scientific Stock?

Boston Scientific (NYSE: BSX) has more than doubled in value since early January 2021 – jumping from levels of $36 then to around $82 now – vs. an increase of about 45% for the S&P 500 over this period. This can primarily be attributed to a 51% rise in the company’s P/S ratio to 7.8x now, versus 5.2x in 2020. Moreover, the company’s revenue increased 54% over this period. Investors have rewarded BSX stock thanks to the uptick in its sales for its new products and the Watchman line.

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 — indicating that BSX underperformed the S&P in 2021.

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 around rate cuts and multiple wars, 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? We think BSX stock is fully priced now. We estimate Boston Scientific’s Valuation to be $83 per share, aligning with its current levels of $82. At its current levels, BSX stock is trading at 8.2x revenues. The 8.2x figure is higher than the stock’s average P/S ratio of 5.6x seen over the last five years. While an increase in the valuation multiple seems justified given the market share gains for its new products and improving profitability we think BSX stock is now fully valued.

Boston Scientific’s revenue rose 54% from $9.9 billion in 2020 to $15.2 billion now, driven by an uptick in total procedures. It has benefited from new product launches, including POLARx (Japan), Vercise, and XL valves. Watchman is an important product line within the cardiovascular segment. The second-generation Watchman FLX has been driving the growth lately – a trend expected to continue in the near term.

The company is also looking at inorganic growth to boost its sales. It acquired Baylis in 2022 and Relievant Medsystems in 2023, bolstering its top-line growth. The company also holds a majority stake in Acotec, which is aiding its sales growth in China. The company is currently in the process of acquiring Axonics and Silk Road Medical.

Looking at segments, Cardiovascular (interventional cardiology and peripheral inventions) saw its sales surge 50% in the last three years, while MedSurg (endoscopy, urology, and pelvic Health), and Rhythm & Neuro (cardiac rhythm management and neuromodulation) sales were up 45% each. Our dashboard on Boston Scientific’s Revenue: How Does BSX Make Money? has more details.

Not only did Boston Scientific post solid sales growth, but its profitability has also improved lately. Its operating margin expanded from 6.9% in 2020 to 17% in 2023, and further to 17.9% for the last twelve months period. Although the company increased its expenditures on R&D and SG&A, with combined expenses under these categories rising 34% between 2020 and 2023, this growth was lower than the 44% rise in total revenues. Now, with higher revenues and margin expansion, the company’s adjusted earnings grew from $0.97 to $2.05 per share over the same period, reflecting a 111% growth in the last three years. We expect the earnings to be $2.39 per share in 2024, reflecting a 17% y-o-y rise.

Overall, Boston Scientific is poised to deliver low-double-digit average annual top-line growth over the next three years. Investors have rewarded the stock with a higher valuation multiple, but is it worth picking now? We don’t think so. We believe that some of the positives around new products and improvement in profitability are already priced in, and investors willing to enter will likely be better off waiting for a dip. Notably, the average analyst price estimate of $88 for BSX also reflects only a little room for growth.

While BSX stock looks fully valued, it is helpful to see how Boston Scientific’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 9/9/2024
[2] Cumulative total returns since the end of 2016

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