More Proof of Accelerating Boston Scientific Turnaround

Merrill Lynch called a strong fourth quarter for Boston Scientific when it reiterated a Buy rating and raised its price target to $18, tying the highest listed analyst price target. As a result, the firm is raising its estimate of 2016 earnings per share (EPS) to $1.05 but leaving the 2015 EPS estimate intact.

At any time a ruling could come from the judge on the Johnson & Johnson (NYSE: JNJ) litigation, and Merrill Lynch believes that the worst case scenario would involve a penalty in the $1 billion range. Boston Scientific does not expect a major mesh litigation milestone in 2015 and its does not expect resolution on the IRS litigation until 2017 or 2018.

Merrill Lynch detailed in its report:

2015 EPS guidance calls for 7% reported growth and 12-13% growth ex-f/x, but we see multiple pathways to higher-than-guidance EPS growth in 2015, including buyback, as BSX is only assuming a modest buyback to offset option dilution. Organic fourth quarter revenue growth was 4.6% and all pipeline milestones were positive.

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Emerging markets now account for 10% of revenues, with 17% growth in the fourth quarter suggesting emerging markets are driving 35% of Boston Scientific revenue growth.

In a recent report, JMP Securities commented on Boston Scientific following its earnings report. Despite the fact that the company posted in-line fourth-quarter earnings and issued a weak guidance, the firm reiterated a Market Outperform rating on the stock and raised its price target to $17 from $15.

Cowen had Boston Scientific as a top health care pick for 2015 at the start of this year.

The company has told analysts that it plans to continue to buy back more stock. It also indicated that it is shooting for 25% operating margins by 2017. The Cowen team highlighted enthusiasm for all three of the company’s major divisions, which include cardiovascular, CRM and medical-surgical, which they agree have operating margin expansion possibilities. Plus, with headline risk from litigation being resolved, the Cowen team likes the stock’s long-term viability.

We further opined that Boston Scientific turnaround was gathering steam back in October, as the stock was breaking $12 for the first time since 2013, and the consensus target was $14.48 at the time.

Shares of Boston Scientific were up over 1% at $15.16 in the second half of the trading day Thursday. The stock has a consensus analyst price target of $16.00 and a 52-week trading range of $11.10 to $15.28.

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