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Boston Scientific Rides on New Growth Plans amid Headwinds

On Jun 29, 2017, we issued an updated research report on leading medical devices company, Boston Scientific Corporation BSX.

Boston Scientific’s shares rallied 12.59% in the past three months, considerably ahead of the Zacks categorized Medical - Products industry’s 9.58% increase.

The company’s recent entanglement with several issues has reduced its share price. While an adverse foreign exchange continued to pose challenges, the market acted extremely bearish on the company’s recent recall of one of its prime products — Lotus range of heart devices from Europe — because of technical malfunctions.

However, the market holds optimism on the stock, following the company’s recent release of an outline on sustained growth strategy. This strategy focuses on planned expansion in new markets and strengthening of product lines across all business segments. The company particularly plans to launch new products into high-growth adjacent markets that may possibly reap an incremental $13 billion in market opportunity by 2020. This apart, plans to diversify its portfolio, shifting from low-growth markets to moderate and high growth markets is in the cards. Per Boston Scientific, a solid execution of this strategy will help the company reach $50 billion worth global medical device markets by 2020 from $40 billion today.

Notably, a strong top-line performance in the last-reported first-quarter 2017 was backed by balanced growth across all geographies and segments. This improved quarterly performance was already a result of a perfect execution of the company’s existing long-term strategic plans including portfolio expansion, globalization efforts and investments into fast-growth markets.

Boston Scientific’s inorganic means to strengthen its core businesses, plus investments in new technologies and global markets buoy optimism. In addition, the company’s acquisition of a number of approvals for its products, both in domestic as well as foriegn markets is indeed encouraging.

Among recent developments, worth-mentioning is the company’s buyout of Switzerland-based Symetis SA, in a bid to fortify its structural heart business in Europe. Besides, NICE’s (National Institute for Health and Care Excellence) recommendation of Boston Scientific’s cardiac resynchronization therapy defibrillators (CRT-D) with EnduraLife Battery Technology for treating patients with heart failure was important.

The company’s newly implemented global restructuring plan also looks bright and needs some attention to be paid to. It has already chalked out several key activities under this program including strengthening its global infrastructure through evolving global real estate and workplaces, developing global commercial and technical competencies, enhancing manufacturing and distribution expertise in certain regions, plus continuing implementation of the plant network optimization (PNO) strategy.

The above activities are scheduled to be complete by 2018-end. Garnering benefits, the company expects the program to reduce gross annual pre-tax operating expenses by approximately $115–$150 million by end of 2020.

Boston Scientific also hopes to reinvest a portion of the program’s savings in strategic growth initiatives.

With the Lotus Valves being yanked off from the European market, we see very little hope for the company to resolve this issue and return the product to the market any time before fourth quarter. This may lead to a major setback for the company’s fast-growing transcatheter aortic valve replacement (TAVR) business within interventional cardiology. Strong players in the large medical device market also pose a tough challenging competition for Boston Scientific.

Zacks Rank and Key Picks

Boston Scientific currently carries a Zacks Rank #3 (Hold).  Few better-ranked medical stocks are Align Technology, Inc. ALGN, Inogen, Inc. INGN and Accelerate Diagnostics, Inc. AXDX. Notably, Inogen sports a Zacks Rank #1 (Strong Buy), while Align Technology and Accelerate Diagnostics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has an expected long-term adjusted earnings growth of almost 24.1%. The stock has roughly added 33.6% over the last three months.

Inogen has a long-term expected earnings growth rate of 17.5%. The stock has gained around 22.5% over the last three months.

Accelerate Diagnostics has an expected long-term adjusted earnings growth of 30%. The stock has added roughly 15.8% over the last three months.

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