| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status |
|---|---|---|---|---|---|---|
| BSX | Medical Supplies | 27.20% | n/a | 3 | 08-Oct-08 | Prior Holding |
02-Jul-08
Medical device company with dim prospects
Holding Rationale for BSX.
BSX was a top performing stock during the bear market of 2000-2002. It rose from below $7 to above $44. From its peak, BSX has drifted downward and now sits around $12/share.
The stock would be lower today if it wasn't for its attractive (backward looking) valuation. It trades just over 2x sales and 1x book.
From a fundamental perspective, however, Boston Scientific is struggling. It is facing increased competition and has failed to come up with blockbuster products (nor do any appear on the horizon, especially since they are using R&D as one area to enact cost cutting). Revenues for this year and next are expected to be below 2007 numbers. And considering the firm does approximately $8b in annual sales, marginal gains in one or two segments will not be enough to propel the stock much higher.
A macro look at the industry is less than promising. With the medical issues regarding coronary stents, growth will be stagnant and may possibly turn negative over the next few years. Considering BSX has the dominant share in this segment, additional organic growth for the firm from this area is unlikely.
Earnings estimates have actually moved up slightly, and while BSX will never trade at a severely depressed valuation, I think we'll see a price below $10 before we see $16. My longer-term price target is around $8/share, which equates to approx 15x 2009 earnings of $0.55 (lower end of estimates). Longer-term, BSX's lack of revenue growth should be the key driver of the struggling share price. Earnings that come from deleveraging, lowered costs, and margin expansion are not sustainable.
Tagged Stocks: BSX
Posted at 05:32 in Holding Rationales | Permalink | Comments () | Top
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