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Boston Scientific (BSX) Strategic Buyouts Aid Amid Cost Woes

Boston Scientific Corporation’s BSX recent acquisitions have added various products with immense potential to its portfolio. However, unfavorable currency movement and product recall were major dampeners. The stock carries a Zacks Rank #3 (Hold).

Over the past six months, Boston Scientific has outperformed the industry it belongs to. The stock has risen 14.2% compared with the industry’s 0.1% rise. Boston Scientific ended the second quarter on an extremely bullish note with adjusted earnings and revenues both surpassing the respective Zacks Consensus Estimate as well as the company’s expectations by a wide margin. The company also registered strong sequential and year-over-year improvement in overall financial performance. Organic sales grew 52% year over year and 9% compared with the 2019 comparable period.

Recovery from the pandemic occurred more quickly than expected, particularly in the United States. Importantly, six out of the company’s seven businesses grew in double digits organically versus 2019. Five of the business units grew faster than their respective markets. Ongoing new product launches contributed to the top line significantly. The company is now enrolling clinical trials at pre-COVID run rates. The raised full-year 2021 guidance with organic revenue growth expectation of 19% to 20% over 2020 indicates that this momentum is likely to continue through the rest of the year.

We are impressed with Boston Scientific’s several recent acquisitions that have added numerous products (though many are under development) with immense potential. This, in turn, should help boost the top line in the long term. The company is optimistic about its recent deal to acquire Israel-based Lumenis that develops and commercializes energy-based medical solutions. The acquisition, which is expected to close in the second half of 2021, should further expand Boston Scientific’s Urology portfolio with its differentiated laser technology.

Apart from this, the recently-closed acquisition of Preventice Solutions (which offers new-generation detection algorithms, a broad portfolio with BodyGuardian MINI, and establishes a strong position for Boston Scientific in the field of cardiac diagnostics) contributed 240 basis points to the company’s revenue growth in the second quarter. Within Electrophysiology, the impending Farapulse acquisition (expected to complete in the third quarter) should help the company to strengthen its position in the emerging space of pulsed field ablation.

Further, the company has made a number of strategic acquisitions of late including BTG, Millipede (within Structural Heart) Claret Medical, VENITI, and Augmenix. These acquisitions all target high-growth markets, enhance the company’s category leadership strategy, leverage existing global capabilities, and further enhance its short-term and long-term growth profile.

On the flip side, escalating costs are putting pressure on the bottom line. In the second quarter, there was a 19.5% rise in the cost of products sold. Selling, general and administrative expenses rose 40.4% while research and development expenses increased 23.1%.

Unfavorable currency movement and continuous legal problems are other major dampeners Strong competitors in the large medical device market also pose a tough challenge for Boston Scientific.

Stocks to Consider

A few better-ranked stocks from the Medical-Products industry are Envista Holdings Corporation NVST, VAREX IMAGING VREX, and BellRing Brands, Inc. BRBR.

Envista Holdings, which carries a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 27.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

VAREX, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 5%.

BellRing Brands, sporting a Zacks Rank #2, has a long-term earnings growth rate of 29.1%.

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