Boston Scientific (BSX) Up 4.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Boston Scientific (BSX). Shares have added about 4.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Boston Scientific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Boston Scientific Sees Growth In All Lines in Q3

Boston Scientific posted adjusted earnings per share of 39 cents in the third quarter of 2019, up 11.4% from the year-ago quarter. The same exceeded the Zacks Consensus Estimate by a penny as well. Meanwhile, the figure matched the upper end of the company’s guided range of 37-39 cents.

Reported EPS in the third quarter was 11 cents compared with earnings of 31 cents per share in the year-ago quarter.

Revenues in Detail

Revenues in the third quarter rose 13.1% year over year reportedly, up 14.2% on an operational basis (at constant exchange rate or CER) and up 9.3% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions) to $2.71 billion. Revenues also surpassed the Zacks Consensus Estimate of $2.64 billion by 2.7%.

Excluding the impact of BTG buyout, in the third quarter, the company achieved 10.6% growth in the United States on a reported basis (same operationally); 6.3% improvement in the Europe, Middle East and Africa region (up 10.8%); 13.8% growth in the Asia Pacific zone (up 14.2%), 6.9% rise in Latin America and Canada (up 9.1%) and 16.1% increase in the emerging markets (up 19.3%).

Segmental Analysis

Boston Scientific currently has three global reportable segments: Cardiovascular, Rhythm and Neuro plus MedSurg.
The company generates maximum revenues from Cardiovascular. Sales from its subsegments — Interventional Cardiology and Peripheral Interventions — were $700 million (up 14.6% year over year organically) and $311 million (up 8.2%), respectively, in the third quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 1.8% year-over-year increase in organic sales to $478 million in the reported quarter.

Electrophysiology sales went up 7% year over year organically to $81 million. Neuromodulation sales grew 7.9% year over year organically to $222 million.

Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $486 million (up 10.4% organically) and $359 million (up 10.5%), respectively.

Boston Scientific noted that its operational results include the outcomes of BTG following the acquisition date of Aug 19, 2019. BTG currently has two reporting segments: Interventional Medicine and Specialty Pharma. From Aug 19 to the quarter end, Interventional Medicine registered revenues of $48 million while Specialty Pharma reported revenues of $23 million.

Margins

Gross margin in the third quarter contracted 62 basis points (bps) year over year to 71.3% due to a 15.6% rise in the cost of products sold.

Adjusted operating margin declined 72 bps to 22.1% in the reported quarter. Selling, general and administrative expenses increased 16.3% to $1.01 billion while research and development expenses rose 5.9% to $306. Meanwhile, royalty expenses of $15 million fell 11.8% year over year.

Guidance

Boston Scientific has raised its earlier-provided reported revenues outlook for 2019. The company projects revenue growth in the 9-9.5% range on a reported basis (earlier guidance was 7-8%). Organically, revenues are projected to be 7.5%, the mid-point of the earlier range of 7-8%. The Zacks Consensus Estimate for 2019 revenues is pegged at $10.68 billion.

The company has also narrowed its 2019 adjusted EPS expectation to a band of $1.55-$1.58 (earlier expectation was $1.54-$1.58). The Zacks Consensus Estimate of $1.56 is within the guided range.

The company also provided its fourth-quarter 2019 financial outlook. It envisions revenue growth in the range of 13-15% on a reported basis and at 8-9% on an organic basis. Adjusted EPS is anticipated within 42-45 cents. The consensus mark for EPS stands at 44 cents while the same for revenues is pegged at $2.9 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Boston Scientific has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Boston Scientific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.