Boston Scientific Earnings: Strong Start to 2023 May Moderate Through Full Year

Boston Scientific BSX posted stellar first-quarter results that exceeded our expectations. However, we’re mindful that this strength is likely to moderate through the rest of the year, and mild upward adjustments to our projections may only result in a modest bump to our fair value estimate of $45 once we also factor in the conversion of preferred stock scheduled for the second quarter. Nonetheless, the firm’s pipeline and new products reinforce our confidence in Boston’s narrow economic moat.

Even after acknowledging that the prior-year period was hampered by the omicron variant of the coronavirus, which makes for a rather easy comparison, Boston’s first-quarter performance was undeniably strong, featuring double-digit organic growth across all the product categories and geographies. This dynamic is consistent with the growth in healthcare utilization seen at HCA and Tenet this quarter. We surmise the strong showing reflects solid underlying demand, which might have been held back somewhat by the labor challenges at providers. Now that providers have begun to see the labor crunch ease and to develop workarounds, we’re more confident that procedure volume can maintain growth this year. In particular, Boston’s product portfolio, which is oriented toward minimally invasive procedures that can often be done on an outpatient basis, should be a major beneficiary.

Although Boston has completed enrollment of its large-scale North American clinical trial for its transcatheter aortic valve replacement (Accurate Neo2), we remain skeptical that the firm will be able to substantially erode Edwards’ and Medtronic’s leadership in this market. Trial data comparing Acurate Neo2 with both the Sapien (Edwards) and CoreValve (Medtronic) is expected in the second half of this year. If the Boston TAVR device is significantly better than the others, that could pave the way for more market adoption, but we think this is unlikely.