Boston Scientific Stock Can See Over 10% Gains
We believe Boston Scientific stock could see an upside of over 10% in the near term. BSX stock trades at $39 currently and it has lost 15% of its value so far this year. It traded at a pre-Covid high of $43 in February, and it is still 11% below that level now. Also, BSX stock has gained 49% from the low of $26 seen in March 2020, as the Fed stimulus largely put investor concerns about the near-term survival of companies to rest. Boston Scientific’s business was also impacted by postponement of elective surgeries. Despite the strong rally in BSX stock since late March, we believe that the stock has more room for growth in the near future. Our conclusion is based on our detailed analysis of Boston Scientific’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
- From 3/24/2020: S&P 500 recovers 48% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here’s how Boston Scientific and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Boston Scientific vs S&P 500 Performance Over 2007-08 Financial Crisis
BSX stock declined from levels of around $14 in September 2007 (pre-crisis peak) to levels of around $7 in March 2009 (as the markets bottomed out), implying BSX stock lost 50% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $9 in early 2010, rising by 28% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51%, followed by a recovery of 48%.
Boston Scientific’s Fundamentals in Recent Years Look Strong
Boston Scientific’s Revenues grew a strong 43% from $7.5 billion in 2015 to $10.7 billion in 2019, primarily led by its MedSurg and Cardiovascular segments, which added around $1.3 billion each in sales during the same period. With the strong growth in revenues, the company’s margins also expanded from 23.0% to 29.4% after adjustments, resulting in a 68% EPS growth from $0.94 in 2015 to $1.58 in 2019 on an adjusted basis. However, the company’s Q2 2020 revenues were 24% below the level seen a year ago, and the Non-GAAP EPS figure for the quarter slid from $0.39 in Q2 2019 to $0.08 in Q2 2020.
Does Boston Scientific Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Boston Scientific’s total debt increased from $5.0 billion in 2016 to $9.5 at the end of Q2 2020, while its total cash increased from $196 million to $1.7 billion over the same period. The company also generated $192 million in cash from its operations in the first half of 2020, and it appears to be in a reasonable position to weather the crisis.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations
Going by the historical performance, we believe that BSX stock has more room for growth in the near future.
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