Change at Top Looks Good for Bottom Line

It's gotta be hard on the ego: The company you spent 10 years leading announces that you're stepping down -- and shares rise 5%. Granted, the S&P 500 bounced back a little yesterday, too, but it rose by less than half of what Boston Scientific (NYSE: BSX  ) did.

The company announced that President and Chief Executive Officer Jim Tobin would resign next month, replaced by Ray Elliott, former CEO of fellow medical-device maker Zimmer Holdings (NYSE: ZMH  ) .

While I can't blame investors for being a little excited about Tobin's departure -- the stock has fallen more than 50% over the last 10 years -- not all of Boston Scientific's issues are his fault. He did lead the company on a spectacular run into 2004, when the stock enjoyed four times its present value, but worries about the safety of drug-eluting stents played a major role in shares' decline. Boston Scientific overpaying for Guidant, after it outbid Johnson & Johnson (NYSE: JNJ  ) and split Guidant's products with Abbott Labs (NYSE: ABT  ) , certainly helped that decline along.

Perhaps investors are less excited by Tobin's departure than by Elliott's arrival. The CEO-to-be said, "[Y]ou know that I am fanatical about sales and cash flow." That should be music to Fools' ears; cash flow, not earnings, is the driving force for a company's growth.

Elliot is also looking to diversify Boston Scientific even further. The company sells a wide array of products, but about half the sales come from stents and heart devices. Being more well-rounded -- like, say, Medtronic (NYSE: MDT  ) -- might help the company, should history repeat itself. If competition or safety issues suddenly reduces Boston Scientific's market share for its bread-and-butter products, having a few more aces up the company's sleeve certainly couldn't hurt.

Our cash flow lovefest continues:

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is an Income Investor recommendation. The Fool has a disclosure policy.


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