A closer look at Boston Scientific

Picking up where I just left off...

In yesterday's e-mail, I took a first look at medical-device maker Boston Scientific (BSX). As I concluded, "the combination of strong historical financials and a depressed valuation makes this a very interesting stock."

So today, let's take a closer look...

Boston Scientific splits its business into two main segments: Cardiovascular (which accounts for roughly two-thirds of revenues) and Medsurg (medical/surgical). About two-thirds of the company's sales are in the U.S.

Here's a slide from the company's in-depth, 138-page investor day presentation last September – covering the first half of 2025:

This next slide from the presentation shows the global market size and growth rates of the many markets the company serves:

For further insight into the company, I'll turn to a pitch for the stock posted earlier this week on my favorite stock idea website, ValueInvestorsClub, by someone using the handle "xds68."

The full pitch is only available to members. So I'll share some extensive excerpts here...

Xds68 summarizes their thesis up front:

Boston Scientific is currently the market leader in interventional cardiac devices. The substantial decline in its share price and [price-to-earning (P/E)] multiple reflects a combination of slower market growth, emerging competition, and a broader contraction in medical product stocks.

As xds68 says in the pitch, about one-third of Boston Scientific's revenues are under higher competitive pressure. That's due to the company's Watchman, Farapulse, and certain urology products facing competition from "recent and pending entrants."

But as xds68 continues:

However, the resulting slowdown in growth, and uncertainty around how long that will persist, presents an opportunity to buy a well-run medical device company with a long track record of success, trading near its lowest trading multiple over the last twenty years. Currently the stock trades around 13x estimated 2026 earnings versus a historical average closer to 20x.

Even facing competitive pressures, BSX should deliver mid-single-digit revenue growth and high-single-digit [earnings per share ("EPS")] growth, a slowdown from recent years, but still representing respectable growth on an absolute basis. In broad terms, roughly a third of the franchise will be flattish on revenue, while two thirds will continue to post mid- to high-single-digit growth. That growth is augmented on [earnings before interest and taxes ("EBIT")] and EPS through cost synergies and capital allocation.

Xds68 then looks at each of Boston Scientific's six main business lines...

1) Watchman, 9% of estimated 2026 revenue:

Watchman is a permanent implantable device to reduce stroke risk in patients with non-valvular [atrial fibrillation ("Afib")], a common heart arrhythmia, where the heart's upper chambers (the atriums) beat out of sync with the lower chambers (the ventricles), causing quivering as opposed to efficiently pumped blood...

This is of particular interest to me because my dad has AFib.

As xds68 continues regarding Watchman:

In recent years, Watchman had been growing 20%+ annually, although that slowed to 19% in 1Q26...

Watchman's only competition is [Abbott Laboratories' (ABT)] Amulet device, which so far has languished at around 10% market share. Amulet has some advantages around the effectiveness of its atrial seal versus Watchman, but it is also a more difficult device to implant (per physician interviews), leading to longer procedures and more frequent complications.

Abbott will release its next generation Amulet 360 early next year which reportedly addresses some of the flaws in the first-generation device. Abbott may also price that device more aggressively in an effort to take market share. That said, Boston will release the next generation Watchman elite device within a year of the Amulet release. That device is designed to more precisely seal the atrial appendage (reducing a reported advantage of Amulet).

In the pitch, xds68 models "flat growth for Watchman for future years":

That's based on low double-digit market growth offset by share losses to Amulet over the next few years. That may prove conservative given historical unit growth and the potential to raise price with the next generation device. The risk is that the market remains soft and Amulet takes more share through pricing. At the current BSX share price the market already appears to have largely discounted muted Watchman growth.

2) Farapulse, 15% of revenue:

Farapulse is the company's system for AFib using pulsed field alation (PFA)...

Today about 75%-80% of US AFib procedures are done with PFA, with the balance performed using RF and to a lessor degree Cryoablation. I've seen a number of doctors predicting that PFA will rise to 90% of procedures over the next five years. The opportunity is larger internationally, where about half of procedures are still performed with RF. Assuming overall category growth of 5%, PFA's inroads on RF should support low double digit growth globally for that procedure.

Offsetting that is the likelihood of further BSX share losses. Farapulse was first to market and currently has roughly 55% market share. However, [Medtronic's (MDT)] Affera platform using the Sphere-9 catheter is gaining share.

And as xds68 says:

[Johnson & Johnson (JNJ)] and Abbott have also entered the market with competitive devices and are likely to take some share. Management is already reporting share losses, which are likely to continue. As a result, market growth in the teens should translate into mid- to high-single-digit growth for BSX over the next few years, with share likely stabilizing closer to 40% over the next few years. International growth will be increasingly important, given the lower penetration of PFA abroad.

3) Interventional Cardiology, 20% of revenue:

This segment includes the broader catheterization lab and vascular procedure business. BSX sells the tools used to diagnose, prepare, and treat blocked or narrowed blood vessels. This includes intravascular imaging, stents, drug-coated balloons, atherectomy, vessel preparation tools, and peripheral vascular products. Cardiologists must be able to see the blockage, understand the lesion, prepare the vessel, and then treat it. BSX's products stretch across that workflow.

Xds68 argues that this business should see strong growth as coronary procedures get more complex.

And as the pitch continues:

Abbott, Philips, Medtronic, and J&J all make products which compete in this area. There is some risk that Watchman will weaken as an anchor product in broader hospital contracts. With the rise of Amulet 360, BSX could lose some pricing leverage across the cardiology portfolio. Still, the business is well diversified, and supplies several different functions within cardiology, supporting the case for sustained growth.

4) Endoscopy, 15% of revenue:

Endoscopy is BSX's gastrointestinal procedure business. It includes devices used by gastroenterologists to diagnose and treat diseases in the digestive tract, bile ducts, pancreas, and related organs. Most of these tools are minimally invasive, being used to stop bleeding, open blocked ducts, drain fluid collection, and conduct imaging.

The endoscopy segment is more stable for BSX, with a strong combination of procedure volume, physician familiarity, and consumable products. Growth comes from increased [gastrointestinal ("GI")] procedure volume, more complex therapeutic endoscopy, and the continued use of differentiated products like Axios and SpyGlass.

The global market is growing in the mid-single digits, with a current value of $8 billion. With reliable product distribution and physician relationships, BSX's endoscopy segment will act as a steady grower and stable business line for the coming years.

5) Urology, 13% of revenue

Urology is a broad segment, with the largest pieces being kidney stone management, benign prostatic hyperplasia, SpaceOAR for prostate cancer, men's health, and the recently acquired Axonics / Bulkamid platform for bladder and pelvic floor disorders. Historically, the business has grown in the mid to high single digits; however, it has been recently underperforming due to issues in stone management and Axonics integration...

Urology will likely recover, after a depressed 2026, to mid- or high-single-digit growth in 2027 as new tools and the Axonics integration come to fruition.

6) Neuromodulation, 6% of revenue:

Division includes spinal cord stimulation for pain, brain stimulation for Parkinsons, peripheral nerve stimulation, and Intracept for lower back pain. Overall, this segment should grow mid-single-digit or somewhat higher.

Xds68 also comments on the recent, large acquisition of Penumbra:

Investors were unnerved by the large, extremely expensive acquisition of Penumbra announced in January. Pending regulatory approval BSX will purchase Penumbra for roughly $12 billion at the current $44 BSX share price. The original price was $14.5 billion, but that has declined with BSX share price (2/3 cash 1/3 stock deal structure).

That's still a hefty 34x [earnings before interest, taxes, depreciation, and amortization ("EBITDA")] using 2027 estimates for Penumbra. The deal was struck prior to the sharp correction in medtech and BSX shares. I don't think a similar deal would happen today – indeed BSX current market cap is only about 5x the cost of Penumbra while EBITDA is roughly 20x higher...

If we assume fair value today for Penumbra would be around 20x EBITDA, given the company's mid-teens revenue growth and solid pipeline, it implies BSX is overpaying by about $4 billion, or $3 in BSX shares. A big number, but I'd argue more than reflected in [BSX's] current share price. The deal will be modestly dilutive to EPS in early years.

But xds68 makes the case that this deal might work out well for Boston Scientific:

Penumbra may also grow faster than expected, and BSX may be underplaying longer- term synergies. There are opportunities internationally where Penumbra has less presence. Penumbra has done a very good job leveraging internal R&D and integrating software into its product set. It's possible those competencies will provide broader benefits to Boston... There will probably be longer term benefits to the combined entity that aren't well understood by investors today since BSX management has been somewhat muted in their public comments.

Finally, as xds68 concludes in the pitch:

To be clear, I don't think the shares will quickly recover to past highs. The company will have to work to stabilize market share in core categories, and there may be a continued transition in the investor base from growth to value. There's also still a risk that estimates are high, particularly for next year.

But I think the longer-term [internal rate of return ("IRR")] from here should be low double digits under undemanding assumptions. I also think barring some very unexpected negative development, downside is limited to the mid $30s, a P/E multiple that would put BSX in line with players like [Baxter International (BAX)], which face greater long term secular challenges. Put differently, while BSX is facing a period of heightened competition, its end markets remain among the faster growing in Medtech.

I want to thank xds68 (whoever they are) for posting such an in-depth analysis of Boston Scientific. And it was so perfectly timed – right as I was taking a look at the stock.

Xds68's analysis is consistent with the company's long-term financial goals – outlined in this slide from the investor day presentation:

If Boston Scientific can deliver performance anywhere close to what xds68 and management outline, the stock looks compelling today at less than 13 times this year's earnings.

But my team and I would also need to do our own work and independently confirm Boston Scientific's forecast...

If we do so and decide that the stock is worth adding to the Stansberry's Investment Advisory model portfolio, subscribers will be the first to know – as always.

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Best regards,

Whitney

P.S. The markets and the Stansberry Research offices will be closed tomorrow in observance of Independence Day, so look for my next daily e-mail on Monday, July 6. Enjoy the holiday!

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