Boston Scientific: Good Valuation, But Technically Shaky

The following post is provided exclusively to readers by the good folks at TheCorrectCall.com.  I agree that medical and drug stocks are showing some resiliency... some even showing very bullish action, but being a technical trader myself, I personally would hold off on Boston Scientific (BSX) until it gets back above key resistance levels of the 50 and 200 day moving averages.  Perhaps its upcoming earnings report will be just the catalyst to do so. 

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Boston Scientific (BSX) makes a variety of medical devices that are used in several areas of interventional medicine across the globe. The company has three main focus areas: Cardiovascular, Endosurgery, and Neuromodulation.

BSX got some great news recently as its Xience V stent received FDA approval. It is partnering with Abbott Labs (ABT) on the stent. This could give Boston Scientific a nice shot in the arm as sales of stents have declined lately due to safety concerns. In fact, Fitch raised BSX's outlook to stable from negative due to its progress in the drug-coated stent market.

The company will report second-quarter earnings on July 22. Analysts are expecting 11 cents per share, which would represent 37% growth over last year's results. BSX has dramatically exceeded expectations in each of the past three quarters, so it wouldn't be unreasonable to expect it again. One analyst has raised his estimate just over the past week for this quarter.

We like the company's valuations at these levels. It is only trading at 1.25x book value, which is a huge discount to several of its peers. Likewise, its price/sales ratio is low at 2.31. It is also changing hands at 18.7x next year's earnings. This is below its expected growth of 22% for next year. With all of the positive developments, we see the stock at $15 in the next 3-to-6 months.

The timing could be right too. In our weekly review of industry performance and chart analysis, all things healthcare appear to be on the march forward. BSX's chart reveals limited downside and a reliable buy signal.

Suggested Stop: $11.56

Comments

[Jake2]

I like your analysis with a couple of reservations: a better P/S ratio would be <0.75 or <1.00. 2.31 seems high. An FPE of 18.7 also strikes me as being high. I also note that you do not mention current or historical PE. "Expected growth" may trump this, however. In addition, when you say "expected" I think "predicted." I am also reminded of the infamous "gut feeling" many analysts have when it comes to "predicting" future stock prices. Finally, when you mention "limited downside" my eye immediately travels up the chart to 13.25+ or - and the base that formed there which immediately collapsed. Also a stochastic crossover to support the MACD crossover would have been nice.

opinion. Something based on a value judgement in other words rather than on hard reasoned fact. strikes me as opinion, a value judgement, rather than something grounded in hard fact) may trump this (emphasise "may").

[Jake2]

Strike the last paragraph. It was included by mistake. Something edited out, etc.

[E Nuff Sed]

---I am not a chartist but I can see a bargain - and BSX is a bargain. It could also be taken over by someone like JNJ at a small premium to this price. JNJ with AAA rating can borrow money very cheaply to mount a hostile take-over.

[Pj568]

I suspect that there are few, if any, bigger fools in todays market. BSX paid 14B for each 1B in annual sales realized post acquisition (7 cents of sales for each dollar spent). Hard to believe they can still justify a carry value of 24B. Don't know when or how much, but I expect a substantial write down that could eliminate book equity. Per the 10-K, impairment testing takes place during the 2nd quarter. Even if no write down is announced next week, I can't imagine a true value anywhere close to the book value.