Zacks_Analysts' Blog : Boston Scientific Stays Neutral - Analyst Blog

Recently, we reiterated our ‘Neutral’ recommendation on Boston Scientific (BSX) with a target price of $7.75.

In early 2010, Boston Scientific undertook a series of management level changes and restructuring initiatives to innovate and focus on revenue growth and increase shareholder value. The company is progressing well with the integration of the CRM and CV businesses into the newly formed CRV Group, as well as elimination of the international and Endosurgery headquarters.

The company is likely to record a reduction in pre-tax operating expenses by $200-$250 million, on completion of various strategic measures in 2012. A part of this savings will be invested in the business to drive revenue growth going ahead. Boston Scientific has adopted zero-based budgeting to reduce expenses. Two other initiatives to improve operating expense leverage are focusing on emerging markets to create low-cost, offshore shared services and Project Transformation to better manage R&D projects. Although benefits from these programs will not be experienced before 2012, these steps should strengthen the company for the long-term.

Boston Scientific has undertaken several acquisitions in the past few quarters, which should aid its long-term growth opportunity. The acquisition of Sadra Medical and Atritech enabled the company to realign its portfolio targeted towards structural heart therapy and atrial fibrillation, respectively. Sadradevelops percutaneous aortic valves replacement to treat patients with severe aortic stenosis. This is one of the fastest-growing medical device markets, which is currently valued at $400 million globally and is expected to grow to $2 billion by 2016. With the acquisition of Atritech, the company has access to Watchman, which provides an alternative to anticoagulant drugs for patients with atrial fibrillation and high risk of stroke. While the device is approved in Europe, the company is working to receive approval in the US.

While there are such positive developments for the company, it continues to witness challenges in the form of pricing pressure and slowdown in elective procedures. Boston Scientific recorded an 8% decline in DES revenue in the US to $187 million, primarily due to pricing pressure. The company expects pricing trends to put added pressure on revenue growth and profit margins in 2011 compared to 2010. Procedural volumes in the US have also been negatively impacted as a result of a high unemployment rate and a decrease in the number of unemployed who enjoy corporate benefits. The competitive landscape of the company remains tough with the presence of players such as Medtronic (MDT) and Abbott Laboratories (ABT).