Boston Scientific Looking Interesting

Boston Scientific's shares are down nearly 16% on news that they are halting defibrillator sales due to an FDA issue. The issue seems to be a paperwork issue rather than a safety issue, as they made manufacturing changes without informing the FDA. This issue is likely to cause a permanent market share loss even once the issues are resolved.

Defibrillator sales make up approximately 20% of Boston Scientific's profit. If Boston Scientific goes down a few percent more, a complete wipeout of defibrillator profits will already be priced in. The shares were previously cheap and seem to be even more discounted currently. Astute investors such as David Einhorn and John Paulson have large positions in the shares. I will likely start building a position on fiurther weakness.

8 comments:

Tsachy Mishal said...

OL DAWG

BSX seems to be in your area of expertise. Less than $10 and plunging. What do you think?

Anonymous said...

BSX has destroyed a lot of value in the last decade, and they are not well positioned against Abbott. Abbott may not be at a 52-week low, but I think it is still a better bargain than Boston Scientific. Abbott has a history of cheap, shrewd acquisitions (including the stents, bought from Guidant/BSX, with which they are now trouncing BSX), Boston Scientific of disastrous ones.

Tsachy Mishal said...

As long as BSX is not going bankrupt there is a price where the shares are undervalued.

Superiority does not mean that the shares will outperform.

PJ said...

I've observed that after a run of entrepreneurial luck even well managed companies often run out of ideas for further progress, and poorly managed companies often learn from mistakes and recapture lost ground. There's a bit of mean reversion in management. That may be why the "In Search of Excellence" and "Good to Great" companies subsequently underperformed.

It can take a decade for that pattern to work, however.

Anonymous said...

I wouldn't buy it because I look at a two year chart and I see this is a triple bottom at 6 and below. Down to 5.50. So I"d wait.

But it already had a decent move today.

Also it's a market stock, and once they break down. It's hard to figure out the direction because it's convoluted. People like you, other people, just too many people with differing opinion.s Hard to figure out the direction.

Also 20% decline in stock price doesn't equate to a 20% loss of sales because stock price is based on earnings for market stocks.

That 20% of sales might contribute more than 20% to earnings.

Anyways, the stock chart is broken, like swhc.

OD

Anonymous said...

I agree there is basically mean reversion in most everything, including individual humans.

Watch, Lebron is gonna start calling KObe his bitch starting from next year.

Tsachy Mishal said...

Thanks OL DAWG. If it gets to your zone of $5.50-$6 I will likely build a position.

Its a 15% loss of sales, 20% loss of profit assuming they can never sell the product again, which nobody is predicting.

Anonymous said...

With regard to the relative valuations of ABT and BSX, expectations for BSX for 2011 are still pretty optimistic. On average, analysts expect the company to earn over $1 billion. Analysts have been expecting BSX to turn around for several years now, and there is no evidence it is happening.