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Boston Scientific (BSX) Gains From New Buyouts, Cost Woes Stay

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Boston Scientific (BSX - Free Report) is gaining traction in emerging markets. Accretive acquisitions also buoy optimism. Yet, unfavorable currency movement and a tough competitive landscape in the large medical device market pose a tough challenge for it. The stock carries a Zacks Rank #3 (Hold).

Over the past year, Boston Scientific has outperformed the industry it belongs to. The stock has gained 7.4% against the industry’s 38% decline.

Boston Scientific ended the fourth quarter of 2022 with revenues in line with the Zacks Consensus Estimate. The company registered a year-over-year improvement in organic sales, indicating a strong rebound in the legacy business amid several macroeconomic issues. Organic revenues at each of its core business segments were up in the reported quarter.

Geographically, the U.S. business grew 10% year over year with particular strength in WATCHMAN, Endoscopy and urology business units. Europe, Middle East and Africa grew 11% on an operational basis.

The above-market growth was supported by the company’s ongoing investments in emerging markets, new and ongoing product launches across the portfolio, pricing discipline and strong commercial execution. Asia Pacific grew 10% operationally. In Latin America, the momentum continued with operational sales growth of 16% in the fourth quarter.

The 2023 guidance seems bullish, indicating that the company is well-poised to handle the industry-wise trend of currency headwinds and global inflationary pressure.

Meanwhile, we are impressed with Boston Scientific’s several recent acquisitions that have added numerous products (though many are under development) with immense potential. This, in turn, should help boost the top line in the long term.

Boston Scientific recently announced its plans to buy a majority stake in M.I. Tech and Acotec, as well as the acquisition of Apollo Endosurgery, which are all expected to close in the first half of 2023. M.I. Tech is expected to widen Boston Scientific’s Neuromodulation product line. The Acotec portfolio is expected to expand Boston Scientific’s drug-coated balloons offerings. Apollo Endosurgery will add a complementary and innovative endoluminal surgery portfolio for the company.

On the flip side, during the fourth quarter of 2022, Boston Scientific’s adjusted earnings missed the Zacks Consensus Estimate due to the ongoing macroeconomic and supply chain challenges. These macroeconomic headwinds were generated from increased freight costs and unfavorable manufacturing variances, primarily related to direct material cost and availability with a smaller portion attributable to increased labor costs.

Mounting costs are putting pressure on the company’s gross margin. Gross margin in the fourth quarter contracted 13 basis points (bps) year over year to 68.8%. There was a 4.1% rise in the cost of products sold.

According to Boston Scientific, its 2023 guidance assumes macroeconomic and supply chain headwinds to be similar to 2022.

Continued foreign exchange headwinds largely offset the company’s top-line performance. For 2023, Boston Scientific projects an approximate 100 bps headwind from foreign exchange on its top line.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , Cardinal Health, Inc. (CAH - Free Report) and Merit Medical Systems, Inc. (MMSI - Free Report) .

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has gained 5.4% against the industry’s 19.6% decline in the past year.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.6%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 6.4%.

Cardinal Health has gained 48.7% against the industry’s 0.8% decline over the past year.

Merit Medical, flaunting a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.

Merit Medical has gained 28.1% against the industry’s 0.8% decline over the past year.

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