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Big Shakeups Ahead For Boston Scientific (BSX)

By: , dated October 29th, 2013

Medical equipment giant Boston Scientific (BSX) surprised investors last week, announcing that it would lay off up to 1,500 employees by the end of 2015, and that its long-time CFO Jeff Capello would resign at the end of the year. This all came after the company reported third quarter earnings which topped analyst estimates. What should investors make of these mixed signals?

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During the third quarter, Boston Scientific reported losses of $5 million and no earnings per share, on revenue of $1.74 billion — which represented nearly 100% reduction in losses and flat year-over-year top-line growth. Adjusted for one-time items, earnings came in at $0.17 per share, topping the consensus estimate of $0.09 per share.

Boston Scientific also narrowed down its full year sales forecast to a range between $7.09 billion to $7.14 billion, from an earlier forecast for sales between $7.05 billion to $7.17 billion. The company also narrowed down its full year earnings forecast to $0.69 to $0.71 per share, slightly up from its prior forecast of $0.67 to $0.71 per share.

For the current quarter, Boston Scientific expects to earn $0.18 to $0.20 per share on revenue of $1.78 billion to $1.83 billion.

Over the past year, Boston Scientific, along with most of the medical device industry, has faced major headwinds — increased austerity measures in Europe, a decreased number of elective surgeries, an unclear future for the U.S. medical device tax, and budget cuts in medical institutions.

To deal with these costly problems, Boston Scientific announced a radical restructuring effort, in which 1,500 jobs would be shed, and that its outgoing CEO, Jeffrey Capello, would be replaced by Dan Brennan effective on January 1. During his two decades with the company, Brennan was formerly the VP of finance and IT at the company’s cardiovascular division, the VP of international finance, and the VP of investor relations.

Capello remained upbeat regarding the future prospects of Boston Scientific, stating, “If I felt that the company wasn’t in a good position I wouldn’t be leaving. We’re having a terrific year. We’re going to finish up the year strong. I feel very confident of the trajectory of the company.”

Capello has reasons to be optimistic – shares of Boston Scientific are 128% over the past twelve months. Yet the stock is trading at 22.9 times forward earnings with a 5-year PEG ratio of 2.17 — which suggests that the stock could be getting slightly overvalued with limited earnings growth on the horizon. The stock does not pay a dividend.

Other News About Boston Scientific
Boston Scientific stents lag, CFO resigns, shares fall
Boston Scientific drops several bombshells.
Boston Scientific to Cut up to 1,500 Jobs
Boston Scientific slims down to cut costs.

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Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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