Boston Scientific on the Rebound

Boston Scientific's (NYSE:BSX) stock price fell 20% in the last six trading days after the company recalled 96,000 Taxus delivery systems. After an upbeat conference call this morning, the stock is rebounding 7%.

Today, as expected, the company released a blowout earnings report. Sales were up 67%. Net income was up 200%, even after a $57 million (after-tax) charge for the Taxus recall.

This first full quarter with Taxus drug-coated coronary stent sales caused Boston Scientific's cardiovascular sales to jump 105% to $1.1 billion. Even better, this highly profitable product swelled overall operating margins from 20% last year to 31% now -- a premier level where competitor Medtronic (NYSE:MDT) operates.

Although the company will not release revised 2004 earnings guidance until the first week of September (so sales trends can be clearly established), the company did say that stent prices have remained stable and that sales are doing well.

Firm pricing is a good indication that competitor Johnson & Johnson (NYSE:JNJ) is not making sales headway with its first-to-market Cypher stent. Consider too that Cypher stents (not the delivery systems) received a Food and Drug Administration warning last October and that the FDA has recently warned about good manufacturing practice regulations.

Competitors Medtronic and Guidant (NYSE:GDT) are not a threat because they are far from having FDA approval for their first drug-coated stents.

Analysts currently project 2004 earnings of $1.72 a share, or 21 times forward earnings (and 15 times 2005 projections). Barring any unforeseen change, Boston Scientific is poised to maintain its market leadership in the growing and highly profitable stent market.

Investors may question why the Boston Scientific news has not helped drug partner Angiotech (NASDAQ:ANPI). Its stock has fallen along with Boston Scientific but has not rebounded. At 16 times 2005 earnings, it sells for a fraction of the 28 times 2005 earnings that J&J drug partner SurModics (NASDAQ:SRDX) musters.

Fool contributor W.D. Crotty had a cardiac catheterization last year. The doctor and attending nurse were J&J shareholders. They laughed at the thought of implanting a J&J product, knowing W.D. was (and still is) a Boston Scientific shareholder. W.D. also owns stock in Medtronic.