Please ensure Javascript is enabled for purposes of website accessibility

Boston Scientific Corporation: Your Next Turnaround Story?

By Peter Stephens – Jan 9, 2014 at 1:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Boston Scientific Corporation seems to have the potential to be a major turnaround play.

As all Fools know, sometimes the best and most profitable investment opportunities come along when things seem to be at their most bleak.

I guess that's why Rockefeller famously said, "The way to make money is to buy when blood is running in the streets."

Investors may be forgiven for thinking that Boston Scientific (BSX 1.06%) is a company without great prospects. Sure, in its last five years of operation, it has only managed to deliver a net profit in one of them, with some pretty hefty losses occurring in four of the five years.

So, it may seem as though there is little hope for investors in the company. But here's where Boston Scientific could actually surprise you and prove to be a great turnaround story.

Indeed of looking back, let's look ahead. Boston Scientific is forecast to deliver earnings per share (EPS) growth of 17% in 2014 and 19% in 2015. This is well up with many of its sector peers and shows that the company does have positive prospects ahead.

For instance, health care equipment sector peers Becton, Dickinson & Co. (BDX 0.92%) and Baxter International (BAX -0.57%) are forecast to grow EPS at an annualized rate of 19% and 8%, respectively, over the next two years. Sure, they have a more stable history of profitability, but as mentioned, the future is what matters, and on that front, Boston Scientific seems to be well-placed.

Furthermore, the future could also prove to be a lot different than the past for Boston Scientific because of its relatively new management team. They believe (and from the EPS forecasts it's clear to see why) that a renaissance is under way at the company, as they change the business strategy and implement fundamental improvements to the business model.

For instance, they have strengthened the local leadership teams as well as streamlined the business -- from research and development right through to the sales function. Although relatively simple, such improvements should make a significant impact upon the fortunes of the company in future years. Often, the simple changes have the most effect.

In addition, Boston Scientific also holds its own versus sector peers such as Becton, Dickinson & Co. and Baxter International in terms of valuation. For example, Boston Scientific currently trades on a price to book ratio of 2.48, which means investors are currently paying just 2.48 times net asset value for shares.

On an absolute basis, this appears to be cheap, with goodwill (the amount above and beyond net asset value) seemingly too low for a business set to return to profitability this year, and grow profits over the next two years.

However, on a relative basis, Boston Scientific looks to be an even better value. Indeed, Becton, Dickinson & Co. trades on a price to book ratio of 4.32, while Baxter International has a price to book ratio of 5.46 -- both significantly higher figures than the number for Boston Scientific.

Indeed, although Boston Scientific has had a difficult five years, it does seem to be turning the corner under new management. A fresh strategy, attractive valuation, and 18% annualized EPS growth over the next two years make this a great turnaround story indeed. 

Fool contributor Peter Stephens has no position in any stocks mentioned. The Motley Fool recommends Baxter International and Becton Dickinson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.