Boston Scientific is at the forefront of a $US147b industry
At the start of the corporate reporting season in the US, this July, Boston Scientific Corporation's (NYSE: BSX) shares were trading mostly in the region of US$42 to US$43.
In a little over six months, the stock price increased from a closing low of US$31.73 in December 2018, to reach a high close of US$43.20 on July 11. That's a healthy 36% rise, which is clearly nothing to sneeze at.
In a company statement released in April this year, Boston Scientific chief executive Mike Mahoney said:
"Our global team and differentiated portfolio enabled us to deliver good sales and earnings growth this quarter, despite some revenue softness compared to our estimates.
"With our strong pipeline and category leadership strategy, we are confident in our top tier 2019 outlook and how we can help improve outcomes for patients around the world for years to come."
Who is Boston Scientific and what does it do?
Boston Scientific Corporation is a maker of medical devices used in interventional medical specialties including radiology, cardiology, neurovascular intervention, electrophysiology, cardiac surgery, vascular surgery, endoscopy, oncology, urology and gynaecology.
Such a list sounds scientific, but that's the bread and butter for this company with reported revenue of US$9.8 billion in 2018.
What you need to know is that Boston Scientific is at the forefront of medical advances, particularly in the cardiovascular area.
The company was founded in 1979 and is headquartered in Marlboro, Massachusetts. It now employs more than 32,000 people globally, according to company reports.
Boston Scientific's 2018 financial results showed its three major sources of revenue were:
- Rhythm and neuro
- Medical surgery
In terms of market reach and size, Boston Scientific's biggest markets include the US, Europe, Middle East & Africa (EMEA), Asia Pacific and Latin America.
Some healthy financial figures based on 2018 results showed:
- US$9.8 billion in sales
- 8% of Operational revenue growth
- 7% organic revenue growth
- 17% adjusted EPS growth
What's driving the growth of Boston Scientific?
Looking at previous and most recent acquisitions, it's clear that Boston Scientific has followed an aggressive acquisition strategy since it listed. Some of the most prominent and major acquisitions include:
- April 2004 - acquired Precision Vascular Systems as part of a series of agreements between the two companies.
- June 2004 - acquired Advanced Bionics Corporation for $740 million in cash, plus earn out payments.
- April 2005 - acquired TriVascular, Inc. for an undisclosed sum. The acquisition gave Boston Scientific the ability to develop and market less invasive medical devices and procedures for treating abdominal aortic aneurysms.
- June 2012 - acquired Cameron Health.
- September 2012 - acquired BridgePoint Medical Inc.
- July 2016 - acquired Cosman Medical Inc.
At last count, Boston Scientific had completed some 31 acquisitions since 2004. This series of acquisitions has been instrumental in the company's venture into a wider segment within the healthcare and medical devices industries.
In a recent analyst briefing, chief executive Mahoney outlined the company's long-term strategy. This includes plans to launch a new cardiac valve, brain stimulation products and other devices by 2022.
In the same briefing, Mahoney laid out his business expansion plans for the next three years. The acquisitions are giving the company exciting and potentially lucrative inroads into other areas of healthcare and medical devices.
In a competitive market such as medical devices, coming up with a constant range of new products is an impressive feat.
What do analysts say about Boston Scientific?
A survey of analysts tracking Boston Scientific and other medical device manufacturers showed that most analysts agree the chief executive has done great work over the last decade by expanding the company's portfolio of 13,000-plus products.
With impressive sales last year and plans to grow that figure by 6-9% annually - analysts believe the company's targets are "highly achievable, if not conservative".
Recent analyst coverage for Boston Scientific showed a majority giving the company an 'outperform' rating. The average target price for the stock is at US$48 based on a research report published on May 13, 2019.
Investment bank UBS has also put a 'buy' recommendation on the company. Barclays gave "Overweight" rating to BSX stocks, setting the target price at $43 in the report published on October 16, 2018.
Technically, there is some good initial support in the US$41 to US$38 region to arrest any near-term corrective moves. While holding above here, there is good potential for the solid seven-year upward trend to see the stock extend to new all-time highs.
Outlook for the industry
The medical devices industry is an ultra-competitive segment. Boston Scientific competes with the likes of Bard, Abbott, BD, Dupont, Aceto and Ompi to name a few.
An overview of the medical device industry shows that the US remains the world's largest medical device market and it shows no signs of slowing.
The US medical device industry was valued at $US147.7 billion in 2016 and is projected to grow significantly through 2019, when it is expected to reach the region of US$173 billion.
Despite the ultra-competitive nature of the medical devices market and the capital-intensive process of bringing new products and technology to the market, Boston Scientific has shown a targeted focus on growth and expansion.
The company has used the last 10 years to build a solid framework and pipeline for new products and a wider market reach.
We consider it a buy.