Click to Enlarge Boston Scientific (NYSE:BSX), a major medical device maker focusing on the cardiac, neurological and endoscopic markets, has perked up for the first time in nine years this month, as demand for the shares have pushed the price over the persistently constrained 18-month average. This is a very, very long time for the shares of a major company to be depressed. Boston Scientific is not actually a lost soul as it still sports a $10.4 billion market cap. The fact that this is 90% lower than where it was in 2004 shows you how large and important the company was at one time.
Shares have risen recently due to appreciation that year-over-year revenue growth has finally turned a corner, with the fourth quarter of 2012 rising sequentially from the same quarter of 2011. The progress is encouraging and is expected by analysts to continue over the rest of this year. Helping out will be a continued commitment to buybacks, with a $1 billion program authorized this year. Executives have committed to spend half of free cash flow to repurchase shares, which is a lot. At the same time, in the last conference call late last month, management also committed to $115 million in cost savings to help improve earnings per share.
Click to Enlarge The company said it sees “encouraging signs” of stabilization in its core cardiac business and actual growth in its other lines. Plus, analysts point to a number of products in the pipeline that should add to overall growth in 2013 and beyond. The list includes these products: Asthmatyx, DBS, S-ICDs, Ingenio, BridgePoint, Lotus Valve, Vessix Renal Denervation, and Watchman LAA.
All of this is what you typically hear from a turnaround story that that has legs: We are seeing top line growth, margin growth, and earnings growth all at the same time. Shares are not likely to double from here after their big move off the floor late last year, but they can certainly advance 15% to 30% as awareness among value investors grows and the company hits its numbers. The $8.50 to $10 range is within reach with a little luck, which would be around 13 times more than consensus EPS estimates.
To get to the upper end of that range, the company needs better-than-expected market growth and share gains from Medtronic in the cardiac segment; gross margin upside; improved pricing in its core products; an increase in medical technology use overall in the nation’s hospitals; and more restructuring. All of these are doable.
Recommendation: Buy BSX common stock at current levels for an $8.75 target
InvestorPlace advisor Jon Markman operates the investment firm Markman Capital Insight. He also writes a daily swing trading newsletter, Trader’s Advantage which aims to capture profits of 15% to 40% and often as much at 100% to 200% in less than 90 days.
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