Last year wasn’t great for the overall medtech market. Although a record number of products were approved, profitability fell below expectations.
However, this sub-sector of the healthcare industry is expected to stabilize in 2024, with overall medtech revenue growth forecast of 100-150 basis points above pre-pandemic rates. Importantly, the sector’s companies are focused on bolstering margins.
Boston Scientific Corporation (NYSE: BSX) is quite popular in the medtech field. Over the past two years, the company’s stock has gained more than 100%. Understandably, investors have taken notice.
This year, Boston Scientific stock outpaced the broader market by a hefty margin and is currently trading quite close to its 52-week high. Can the high-performing stock go higher?
Acquisitions Are a Growth Driver
Over its long operating history, Boston Scientific has not shied away from spending money on acquiring companies that complement its technologies.
Acquisitions are essential to Boston Scientific’s growth plan. According to one report, it has made 50 acquisitions, spending over $16 billion on them.
One of the questions was did Boston Scientific acquire Axonics? Yes, the company declared that it had entered a definitive agreement to acquire Axonics, Inc. (NASDAQ: AXNX), a medtech company developing differentiated devices to treat urinary and bowel dysfunction. The purchase price was set at $71 in cash per share, corresponding to an enterprise value of $3.4 billion.
Overactive bladders (OABs) turns out to be an endemic problem with many sufferers. Axonics’ product portfolio addresses this usnig sacral neuromodulation (SNM) therapy.
Via this pending acquisition, Boston Scientific’s Urology Business is set to spur significant growth while ushering in the company’s first step into the SNM therapy market.
However, not everything is rosy with Boston Scientific’s plan to acquire Axonics. The Federal Trade Commission (FTC) is looking into this acquisition closely, which will likely delay it. Moreover, Boston Scientific might inherit a patent dispute between Axonics and medical device giant Medtronic PLC (NYSE: MDT).
It’s also worth noting that, in March, the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office ruled in favor of Medtronic and affirmed the validity of claims in two of its patents’ SNM technologies.
Silk Road Medical, Inc.
More recently, Boston Scientific announced its intent to buy Silk Road Medical, Inc. (NASDAQ: SILK).
Silk Road is known for its innovative platform to prevent stroke in patients with carotid artery disease. Its products use a minimally invasive procedure called transcarotid artery revascularization (TCAR).
The TCAR system was approved by the U.S. Food and Drug Administration (FDA) in 2015 and has been supported by clinical studies.
The method’s popularity has contributed to Silk Road projecting a substantial net revenue of about $194-198 million this year, reflecting 10-12% growth over the prior year.
The acquisition, which has an enterprise value of approximately $1.16 billion, is expected to close in the second half of this year.
How Are Boston Scientific’s Fundamentals Amid This?
Boston Scientific’s financials remain solid. In the last quarter (first quarter of fiscal 2024), the company’s net sales increased by 13.8% to $3.86 billion from the prior year’s period. On an organic basis, growth of 13.1% year-over-year topped the company’s own expectations of 7-9% growth.
Boston Scientific’s cardiovascular segment does the heavy lifting for its top line, accounting for 63% as of the last quarter. The revenue from this segment grew 15.9% year-over-year to $2.44 billion.
The company’s other segment, MedSurg addresses endoscopy, urology, and neuromodulation. It accounts for 37% of sales and this segment’s revenue also saw double-digit growth of 10.3% from a year ago. However, the MedSurg segment has broadly outpaced the flag-bearing cardiovascular segment in terms of growth in its adjusted operating margin.
Although it reported negative free cash flow in the quarter, that number includes approximately $251 million of expected payments related to acquisitions, restructuring, litigation, and other special items.
Moreover, the company expects to be free-cash-flow-positive by the end of this year. For the current fiscal year, Boston Scientific expects to see an 11-13% growth in net sales and 10-12% organic growth from the prior year.
Is Boston Scientific a Buy Now?
While there is lots to like about Boston Scientific, valuation appears to become an issue soon with a discounted cash flow forecast projecting fair value at $61 per share.
With that said, it must be noted that analysts overall are much more bullish and have an $84.10 per share consensus price target on the stock at this time.
The stock is trading at a high price-to-earnings ratio but a low PE relative to near-term earnings growth, which is set to grow this year and at a CAGR of 28% for the next 5 years.
The bottom line is with strong fundamentals and strategic acquisitions, Boston Scientific is poised for growth at this point, which might make it a medtech jewel over the long term. Apart from the company’s notable purchases, its offerings are seeing some traction.
So while valuation is a bit stretched at 32.8x forward non-GAAP earnings, above the industry’s normal level, the company well grow into its potential now as earnings climb higher over coming years.
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