Investors have enjoyed a handy recovery in the turnaround of Boston Scientific Corp. (NYSE: BSX). Perhaps that should even say “finally enjoyed” in the turnaround. After all, this stock has been in turnaround mode since even before the recession. Now it is time to decide whether to sell or to keep a toe in the water.
Boston Scientific shares now trade at well over 20 times the consensus earnings per share estimate for 2014. One firm covering it is Argus, which has it at more than 24 times their earnings estimate. Argus has a Hold rating on the stock.
Peers have an average forward earnings estimate of closer to 15 times earnings. Another consideration is that Boston Scientific shares have rallied well over 100% so far in 2013, versus about 26% for the S&P 500.
After earnings, Boston Scientific did raise its 2013 adjusted earnings guidance including items to $0.69 to $0.71 per share. The prior range was $0.67 to $0.71 per share. Outside of a $0.24 Guidant-related amortization charge adjustment, that would be $0.45 to $0.47 in earnings per share.
Argus did not tell you to sell, but they sure did not tell you to buy new shares either, despite a slight raise to the earnings estimates. The analysts said, “Although the company has improved operations over the past year, we do not believe that these improvements justify the stock’s recent price appreciation or premium valuation.”
If you look at the consensus estimates from Thomson Reuters, the $7.39 billion sales estimate for 2014 is calling for more than 3% sales growth. That would mark the first year of sales growth in what feels like ages. It would be at least a four-year decline streak, and likely more.
This has been an impressive ride in 2013, and one that its long-term battered shareholders deserve. Still, the move seems stretched for such limited growth and such a large premium versus peers. New money might want to be patient and hope for a pullback. Turnaround investors hoping for more might want to consider taking at least some of the chips off the table here, in case Boston Scientific’s history catches up with it all over again.
This stock currently trades around $12.00, with a 52-week trading range of $5.46 to $12.48. Thomson Reuters shows a consensus analyst price target of $12.14.
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