Medical Stocks

Boston Scientific Corporation Annual Stock Valuation – 2014 $BSX

215px-BostonscientificlogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Boston Scientific (BSX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Boston Scientific Corporation is a developer, manufacturer and marketer of medical devices that are used in a range of interventional medical specialties. During the year ended December 31, 2011, its products were offered for sale by seven core businesses: Interventional Cardiology, CRM, Endoscopy, Peripheral Interventions, Urology/Women’s Health, Neuromodulation, and Electrophysiology. In November 2013, the Company announced that it has acquired Bard EP, the electrophysiology (EP) business of C.R. Bard, Inc. In February 2014, Boston Scientific Corp acquired StarMedTec GmbH, a Starnberg-based manufacturer of medical laser systems. Effective May 7, 2014, the Company acquired the remaining 72% interest, which it did not already own, in IoGyn Inc.
BSX Chart

BSX data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Balance Sheet – 6/30/2014

Current Assets $3,214,000,000
Current Liabilities $1,773,000,000
Total Debt $4,252,000,000
Total Assets $16,477,000,000
Intangible Assets $11,394,000,000
Total Liabilities $9,933,000,000
Outstanding Shares 1,323,770,000

Earnings Per Share

2014 (estimate) $0.80
2013 -$0.09
2012 -$2.89
2011 $0.29
2010 -$0.70
2009 -$0.68
2008 -$1.36
2007 -$0.33
2006 -$2.81
2005 $0.75
2004 $1.24

Earnings Per Share – ModernGraham

2014 (estimate) -$0.34
2013 -$0.88
2012 -$1.21
2011 -$0.43
2010 -$0.92
2009 -$0.98

Dividend History

Boston Scientific does not pay a dividend.

Conclusion:

Boston Scientific does not qualify for either the Defensive Investor or the Enterprising Investor.  Both investor types have significant concerns relating primarily to the company’s unstable earnings and financial condition.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  As for a valuation, the company appears to be overvalued as the company’s normalized earnings are negative.  This level of earnings does not support a positive valuation and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Boston Scientific Corp (BSX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Boston Scientific Corp (BSX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

2 thoughts on “Boston Scientific Corporation Annual Stock Valuation – 2014 $BSX

  1. Hi,

    This is a fantastic blog on value investing. One of the rare that still devotes time to Intelligent Investor.

    I am Manish and I am from India. I am trying to build a value-based portfolio inspired by the teachings on Ben Graham and Warren Buffett..

    I would like to ask – a) how long have you been investing and do you rely solely on the approach mentioned in this blog? and b) what other books do you recommend beside Intelligent Investor??

    Ii would be nice of you answer these questions. I will look forward to your response..

    Thanks,

    Manish

    1. Manish, Thanks for the comment. I’ve been investing in some fashion for about 15 years, but more seriously for about 10. I do rely solely on the ModernGraham approach. Once a month I publish a post with 5 new books for value investors. Here’s the latest edition of that list. Hopefully soon I will find time to compile a list of each book from those posts – that is certainly in the plans for the site.

      -Ben

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