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What's in Store for Boston Scientific's (BSX) Q3 Earnings?

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Boston Scientific Corporation (BSX - Free Report) is scheduled to report third-quarter 2016 results before the opening bell on Oct 26. Last quarter, the company posted earnings in line with the Zacks Consensus Estimate. The four-quarter trailing average beat is pegged at 6.26%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Based on a solid performance in second-quarter 2016 backed by a strong global team, perfect execution of long-term strategic plans including portfolio expansion, globalization efforts and investments into faster growth markets, Boston Scientific strongly expects this trend to continue even in the second half of 2016 and beyond.

This enabled the company to raise its 2016 guidance for revenue and adjusted EPS. The revenue guidance was raised to the range of $8.27–$8.37 billion (annualized growth of 11% to 12% on both reported as well as operational basis) from the earlier provided band of $8.075–$8.225 billion. Adjusted EPS guidance for 2016 was raised to the range of $1.07−$1.11 from the earlier projection of $1.06−$1.10.

For the third quarter of 2016, adjusted earnings are expected in the band of 25−27 cents per share on revenues of $2.035–$2.085 billion.

BOSTON SCIENTIF Price and Consensus

BOSTON SCIENTIF Price and Consensus | BOSTON SCIENTIF Quote

With respect to gross margin guidance, on the heels of a sluggish second-quarter show, in the third quarter too, gross margin will be impacted by an expected 75−100 basis points of unfavorable foreign exchange. However, in the second half, gross margin will benefit from lower inventory charges and lower 2016 standard costs of products.

With regard to adjusted operating margin, Boston Scientific’s eight successive quarters of improvement and raised operating margin guidance have encouraged us to expect another quarter of strong sequential growth with more noticeable improvement in the Rhythm Management segment. According to Boston Scientific, it is currently on track to reach 25% plus in operating margin in 2017.

We are also optimistic about the company’s gradually improving performance in Interventional Cardiology, led by an innovative portfolio and robust commercial teams globally. The company is consistently gaining share in a number of cardiovascular segments and DES, as a differentiated platform of premier and synergy continues to build momentum and gain share globally.

Meanwhile, MedSurg is expected to demonstrate consistent performance, led by endoscopy. Urology and Women's Health are also estimated to grow beyond market levels driven by investment strategies in key international geographies.

However, the severe currency headwinds that Boston Scientific has been facing over the recent past remain a concern. We note that with the company recording 47% of its sales from the international market, it remains highly exposed to currency fluctuations. For 2016, Boston Scientific expects currency headwind to the tune of 5 cents per share on adjusted earnings relative to the year-ago quarter.

Further, sluggish CRM sales over the recent past continue to weigh on the stock. At the beginning of 2015, Boston Scientific predicted a slowdown in worldwide CRM sales for the entire year due to replacement cycle headwinds and competitive launches in the U.S. Although the company is currently expecting a rebound in its CRM performance in the second half of 2016, we remain on the sidelines based on the challenges it is still facing in this business, especially in the U.S.

Earnings Whispers

Our proven model does not conclusively show that Boston Scientific is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Boston Scientific’s Earnings ESP is 0.00% since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents.

Zacks Rank: Boston Scientific has a Zacks Rank #2, which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three companies you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat this quarter:  

Achillion Pharmaceuticals, Inc. has an Earnings ESP of +12.5% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Cooper Companies Inc. (COO - Free Report) has an Earnings ESP of +2.22% and a Zacks Rank #2.

Glaukos Corporation (GKOS - Free Report) has an Earnings ESP of +200% and a Zacks Rank #1.

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