Why the Downgrade?
Boston Scientific has been witnessing sharp downward estimate revisions after the company reported dismal first-quarter 2013 results that prompted management to take a conservative stance on its fiscal sales and earnings outlook.
Over the last 30 and 60 days, out of 11 analysts covering the stock for the second quarter of 2013, 3 revised estimates downward with none in the opposite direction. Similarly, 2 and 3 out of 11 analysts covering the stock for 2013 revised estimates downward over the last 30 and 60 days, respectively, with no upward revisions.
Boston Scientific incurred losses during the first quarter of 2013 due to a challenging economic and competitive environment, pressure on core segments and a larger-than-expected currency headwind.
These factors are expected to adversely impact the company through the next quarter. Moreover, for full year 2013, the company lowered its revenue guidance to the band of $6.950 to $7.150 billion (earlier band being $7.168−$7.243 billion) with adjusted EPS in the range of 65–70 cents (previously 64–70 cents).
Despite Boston Scientific's initiatives to revive its top line, we remain cautious as the company's core segments, ICDs and DES (contributing 35% of sales), continued to witness several headwinds. Due to lower procedure volume and pricing pressure in the US, the company's share in the defibrillator market dropped by 100 basis points compared with the year-ago period.
The CRM market is expected to remain sluggish throughout 2013. The DES business in the US continues to witness pricing pressure, lower procedural volume and lower penetration rates, although the situation is improving gradually. As a result, the company's top line continues to remain under pressure.
Earnings Whispers?
Our proven model does not conclusively show that Boston Scient! ific is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method ) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The stock has an ESP of -6.25%.
Zacks Rank #4 (Sell): Boston scientific's Zacks Rank #4 (Sell) when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Boston Scientific is due to report its second quarter 2013 results in late Jul/early Aug. Currently, the Zacks Consensus Estimate is pegged at 16 cents per share.
Other Stocks to Consider
Among other stocks in the industry, Natus Medical (BABY), Wright Medical Group Inc. (WMGI) and ResMed Inc. (RMD) appear impressive. These stocks carry a Zacks Rank #1 (Strong Buy).
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