Boston Scientific Stock Appears To Be Fairly Valued
- By GF Value
The stock of Boston Scientific (NYSE:BSX, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $39.32 per share and the market cap of $55.9 billion, Boston Scientific stock shows every sign of being fairly valued. GF Value for Boston Scientific is shown in the chart below.
Because Boston Scientific is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 2.5% over the past three years and is estimated to grow 5.53% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Boston Scientific has a cash-to-debt ratio of 0.18, which ranks in the bottom 10% of the companies in the industry of Medical Devices & Instruments. Based on this, GuruFocus ranks Boston Scientific's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Boston Scientific over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Boston Scientific has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $9.9 billion and loss of $0.12 a share. Its operating margin is 6.90%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks the profitability of Boston Scientific at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Boston Scientific over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Boston Scientific is 2.5%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is -11.7%, which ranks worse than 80% of the companies in the industry of Medical Devices & Instruments.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Boston Scientific's return on invested capital is 2.60, and its cost of capital is 7.95. The historical ROIC vs WACC comparison of Boston Scientific is shown below:
Overall, the stock of Boston Scientific (NYSE:BSX, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 80% of the companies in the industry of Medical Devices & Instruments. To learn more about Boston Scientific stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
