Boston Scientific stock drops sharply on outlook

By Debra Sherman

CHICAGO (BestGrowthStock) – Boston Scientific Corp. (BSX.N: ) shares dropped to their lowest level in 11 months as investors fretted over the growth prospects for the medical device maker.

The company, whose shares were off as much as 10.9 percent in early Thursday trading, reported quarterly results late Wednesday and a 2010 outlook that disappointed investors.

Natick, Massachusetts-based Boston Scientific, which installed a new chief executive last summer, also announced a restructuring that will cut 8 to 10 percent of its work force and reduce expenses by as much as 7 percent.

During a 2-1/2 hour conference call Thursday with analysts, management said its two key businesses — Cardiac Rhythm Management (CRM), which includes implantable defibrillators (ICD), and its heart stent business — were sluggish, plagued by price pressure and slow growth.

Moreover, management said some of its CRM sales people were likely to leave and join competitors as a result of recent disciplinary actions taken by the company.

The departures, along with product advisories, could result in up to $100 million in lost sales in 2010.

Management said disciplinary action was taken with “a number” of CRM sales personnel, but declined to provide details when questioned repeatedly by analysts.

Boston Scientific competes with Medtronic Inc (MDT.N: ) and St. Jude Medical (STJ.N: ) in the CRM market.

Tim Nelson, an analyst with asset management firm FAF Advisors, said Thursday’s sell-off was probably overdone, but it is difficult to put a value on the company, which still has a mountain of debt, gross margin pressure and an uncertain outlook.

“The first-day reaction is usually the flush,” he said. “But I can’t figure out what this company is worth. They’re not going bankrupt, but they’re not growing either.”

By early afternoon, its shares were off 8.8 percent at $7.56 on the New York Stock Exchange.

The world’s second-largest maker of heart devices attracted contrarian options trading, analyst Caitlin Duffy of Interactive Brokers Group said in a note to clients. She pointed to put-selling and call buying in the March contracts, which are bullish short-term trades.

But analysts say the long-term story will take time to play out and the stock is likely to remain under pressure over the longer term.

Chief Executive Ray Elliott characterized 2010 as a “rebuilding year,” adding that Boston Scientific is a big ship that will not turn in a quarter or two.

“These are not very attractive businesses right now,” said Jan Wald, an analyst with Noble Financial Capital Markets. “For the last five years, Boston has been trying to figure out how to get out from under the cardiovascular business. They bought Guidant and got into ICDs, but that didn’t work out very well.”

Over the longer term, as the company pays down debts and makes divestitures, it will make “transformational acquisitions” that will diversify it offerings, expanding in urology, gynecology and endoscopy.

“That will take a few years, but that’s an eternity for investors,” said Wald.

(Additional reporting by Doris Frankel; Editing by Tim Dobbyn)

Boston Scientific stock drops sharply on outlook