Medical devices encapsulate instruments, apparatus, machines, tools, implants, or similar products utilized for the prevention, treatment, mitigation, and accurate diagnosis of diseases and ailments. The medical device industry, a rapidly expanding arm of the medtech industry, is poised to flourish amid an amplified focus on health awareness, resulting in healthcare agencies increasingly prioritizing early detection and treatment.
This article evaluates and compares the fundamentals of medical equipment companies, Smith & Nephew plc (SNN) and Boston Scientific Corporation (BSX), to ascertain which one is better equipped to leverage on the flourishing industry momentum as these stocks prepare for their quarterly earnings releases.
The advent of cutting-edge medical devices and diagnostic tools has opened avenues for individuals to lead prolonged, healthier, and independent lives with enhanced productivity. The medical device industry has notably transitioned toward remote healthcare solutions and contactless services amid the pandemic.
However, with the crisis gradually subsiding, R&D in the medical device realm is realigning its focus from COVID-related treatment strategies toward point-of-care examinations, intensive and minimally invasive implants, and elective procedures. This could keep the medical equipment industry buoyed for the long term.
Since 2023, there has been a tremendous surge in the incorporation of artificial intelligence (AI) and the Internet of Medical Things within this industry. The escalating preference for digital platforms in the medical equipment sphere has resulted in the rise of robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records, predictive analytics, immediate alert systems, and revenue cycle management services.
Consequently, the global medical devices market is projected to reach $799.67 billion by 2030, growing at a CAGR of 5.9%.
SNN, a Watford, United Kingdom-established company, develops, manufactures, markets, and sells medical devices and services locally and internationally. Conversely, BSX specializes in manufacturing and marketing medical devices for diverse interventional medical specialties worldwide.
The fourth-quarter results for both SNN and BSX are due for revelation soon. Analysts expect SNN’s revenue to increase 4.9% year-over-year to $1.43 billion in the fiscal fourth quarter ending December 2023, while BSX's revenue and EPS are expected to grow 11% and 14% year-over-year to $3.60 billion and $0.51, respectively.
In terms of price performance, both SNN and BSX gained marginally intraday. However, over the past three months, SNN has gained 30.2% to close the last trading session at $28.06, whereas BSX has gained 22.8% to close the last trading session at $61.13.
Here are the reasons why I think SNN might perform better in the near term:
Recent Developments
SNN recently announced standout results for its REGENETEN Bioinductive Implant from a recently completed randomized controlled trial (RCT). Published online in Arthroscopy in December, the report concluded that at one year, medium and large full-thickness rotator cuff tears repaired and augmented with the REGENETEN Bioinductive Implant had better tendon healing compared to the standard of care. This should bode well for the company.
On January 8, 2024, BSX entered into a definitive agreement to acquire Axonics, Inc. (AXNX), a publicly traded medical technology company primarily focused on the development and commercialization of differentiated devices to treat urinary and bowel dysfunction. The purchase price is $71 in cash per share, reflecting an equity value of approximately $3.7 billion and an enterprise value of roughly $3.4 billion.
Senior VP and president of Urology, BSX, Meghan Scanlon, said that integrating AXNX into BSX's operations would significantly bolster BSX’s capabilities in aiding urologists attending to patients with often-chronic conditions. This strategic acquisition also paves the way for BSX’s venture into sacral neuromodulation, a rapidly growing sector that presents opportunities to broaden patient care access.
Recent Financial Results
For the fiscal third quarter that ended September 30, 2023, SNN’s revenue stood at $1.36 billion, up 8.6% year-over-year, with Orthopedics revenue amounting to $536 million, up 8.9% from the year-ago quarter. Its Sports Medicine & ENT segment revenue was up 11.3% year-over-over to $425 million.
On the contrary, BSX’s net sales came to $3.53 billion during the fiscal third quarter ended September 30, 2023, reflecting an increase of 11.3% year-over-year. Adjusted net income attributable to BSX’s shareholders stood at $732 million, up 18.1% from the year-ago quarter, while adjusted net income per share attributable to BSX’s shareholders came in at $0.50, up 16.3% year-over-year.
However, BSX’s total current liabilities, as of September 30, 2023, stood at $4.58 billion, compared to $3.80 billion as of December 31, 2022.
Past And Expected Financial Performance
SNN’s revenue has grown at 4.5% and 1.9% CAGRs over the past three and five years, while BSX’s revenue has grown at 10.8% and 7.3% CAGRs over the same periods, respectively. SNN’s EBITDA grew at a 4.9% CAGR over the past three years, while BSX’s grew at an 18.2% CAGR.
Analysts expect SNN’s revenue to increase 4.7% year-over-year to $1.42 billion in the fiscal first quarter ending March 2024. Moreover, for the fiscal year ending December 2024, its revenue and EPS are expected to increase 5.1% and 11.8% year-over-year to $5.83 billion and $1.88, respectively. Also, the company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
BSX’s revenue and EPS are expected to rise 8.2% and 10.5% year-over-year to $3.67 billion and $0.52, respectively, in the fiscal first quarter ending March 2024. Moreover, for the fiscal year ending December 2024, its revenue and EPS are expected to increase 8.8% and 11.7% year-over-year to $15.35 billion and $2.24, respectively. Also, the company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
Valuation
SNN’s forward non-GAAP PEG multiple of 1.59 is lower than BSX’s 2.41. SNN’s forward EV/Sales of 2.72x is lower than BSX’s 6.96x.
Thus, SNN seems more affordable.
Profitability
SNN’s trailing-12-month gross profit margin of 70.41% is higher than BSX’s 69.06%. In addition, SNN’s trailing-12-month asset turnover ratio of 0.54x is higher than BSX’s 0.42x. Moreover, SNN’s trailing-12-month Return on Assets of 5.91% is higher than BSX’s 5.19%.
Thus, SNN is more profitable.
POWR Ratings
SNN has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, BSX has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SNN’s Value grade of B is in sync with its lower-than-industry valuation. Its forward EV/Sales of 2.72x is 27.9% lower than the industry average of 3.77x. Moreover, its forward EV/EBIT multiple of 15.64 is 10.7% lower than the industry average of 17.50.
Conversely, BSX’s D grade for Value justifies its higher-than-industry valuation. Its forward EV/Sales of 6.96x is 84.1% higher than the industry average of 3.77x. Moreover, its forward EV/EBIT multiple of 26.45 is 51.1% higher than the industry average of 17.50.
Within the Medical - Devices & Equipment industry, SNN is ranked #7 out of 143 stocks, while BSX is ranked #48.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view SNN ratings. Get all BSX ratings here.
The Winner
The medical industry is witnessing expansion, driven by escalating medical needs and a remarkably steady demand for health services and products. Industry players SNN and BSX are well-positioned to benefit from these industry tailwinds.
However, SNN stands out notably due to its affordability, robust profitability outlook, vigorous financial health, and encouraging bottom-line forecasts, making it the more advantageous pick now.
Adding further credence to this proposition is SNN's consistent track record of returning value to shareholders. The company has paid dividends for an impressive string of 23 years, underscoring its commitment to shareholder returns.
It pays an annual dividend rate of $0.58 per share to its shareholders, which yields 2.05% on prevailing prices. SNN’s four-year average dividend yield is 2.31%. This historical consistency and competitive yield show SNN's proficiency in creating shareholder value.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Devices & Equipment industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BSX shares rose $0.29 (+0.47%) in premarket trading Monday. Year-to-date, BSX has gained 5.74%, versus a 2.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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