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Why Is Boston Scientific (BSX) Down 1.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Boston Scientific (BSX - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Boston Scientific due for a breakout? 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 drivers.

Boston Scientific Sees Sluggish Q3 Sales Across Core Segments

Boston Scientific posted adjusted earnings per share (EPS) of 37 cents for the third quarter of 2020, down 5.1% from the year-ago figure. However, the figure exceeded the Zacks Consensus Estimate by 48%. The reported quarter’s adjustments take into consideration certain amortization expense, acquisition/divestitures-related net charges and impairment charges among others.

Reported loss in the third quarter was 12 cents per share against year-ago EPS of 9 cents.
Although the quarter’s adjusted earnings dropped year over year, strong sequential improvement was reported.

Revenues of $2.66 billion in the third quarter dipped 1.8% year over year on a reported basis, down 2.5% on an operational basis (at constant exchange rate or CER). Revenues declined 5.7% on an organic basis (adjusted for foreign currency fluctuations and certain recent acquisitions and divestments). The top line, however, beat the Zacks Consensus Estimate by 5.6%.

Q3 Revenues in Detail

In the third quarter, revenues declined 4.2% in the United States on a reported basis (same operationally). Revenues were up a marginal 0.8% in the Europe, Middle East and Africa region (down 2.9%); down 2.6% in the Asia Pacific zone (down 4.1%); down 24.3% in Latin America and Canada (down 16.6%) and down 10.3% in emerging markets (down 7.1%).

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 sub segments, namely Interventional Cardiology and Peripheral Interventions were $586 million (down 16.8% year over year organically) and $416 million (up 2%), respectively, in the third quarter.

Boston Scientific's Rhythm and Neuro business comprises Cardiac Rhythm Management (CRM), Electrophysiology and Neuromodulation. CRM reflected a 3.7% year-over-year decline in organic sales to $465 million in the reported quarter.

Electrophysiology sales were down 7.5% year over year, organically, to $76 million. Neuromodulation sales declined 3% year over year on an organic basis to $216 million.

Other segments like Endoscopy plus Urology and Pelvic Health (under the MedSurg broader group) recorded sales of $475 million (down 3% organically) and $350 million (down 0.5%), respectively.

Margins

Gross margin in the third quarter contracted 398 basis points (bps) year over year to 67.3%. There was an 11.8% rise in the cost of products sold to $869 million.

Selling, general and administrative expenses dropped 2.8% to $984 million while research and development expenses improved 2.9% to $315 million. Meanwhile, royalty expenses of $12 million fell 20% year over year. Despite that, adjusted operating margin declined 404 bps to 18% in the reported quarter.

Guidance

The uncertainties regarding the duration and impact of the coronavirus pandemic on the company’s overall business had earlier compelled Boston Scientific to suspend its previously-issued 2020 financial guidance. This time too, the company could not come out with any update on its full-year guidance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.47% due to these changes.

VGM Scores

Currently, Boston Scientific has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions indicates a downward shift. Notably, Boston Scientific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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