Today's free S&P report of Business Week is BSX: http://research.businessweek.com/spreports_files/report_free.asp?Symbol=BSX

Overview 28-JUL-03



We see 2003 revenues advancing 16%, to $3.4 billion, reflecting our forecast for growth in the electrophysiology, gastroenterology, neuro-endovascular therapy, urology, and vascular surgery areas. Sales of coronary stents may also improve, on market share gains for the Express2 platform, but second half stent revenues will likely moderate, following the launch of a drug coated stent by Johnson & Johnson in April 2003. Assuming that BSX gains FDA approval for its drug-eluting stent in late 2003, we expect 2004 revenues to reach $4.8 billion. Gross margins may reach 72.5% in 2003, but we expect higher SG&A spending ahead of the planned drug coated stent launch. R&D costs should consume 12% of sales, in our opinion. After taxes at 28%, we see 2003 operating EPS of $1.16, with a gain to $2.85 for 2004. Our Standard & Poor's Core Earnings estimate for 2003 is $1.01, including $0.12 of stock option expense and an in-process R&D charge of $0.03.

Valuation 28-JUL-03


We remain bullish on the stock, and believe the company will show increasingly positive sales and earnings momentum through 2005. We expect BSX to be a significant rival to Johnson & Johnson in the drug coated stent markets, both in the U.S. and Europe, where the company estimates it ended the 2003 second quarter with a 54% market share. We estimate that the drug coated stent market will approximate $3.8 billion by 2004, and $4.5 billion in 2005, assuming that 65% to 70% of the market converts from bare metal stents, more stents are used per procedure, and pricing remains firm. We expect BSX to command 40% of the market in 2004. On that basis, we see 2004 revenue growth of 41%, with EPS more than doubling. However, management hopes to capture nearly 50% of the market, which could drive 2004 EPS beyond $3.00. We think that at a recent P/E of 21X our 2004 EPS forecast, BSX remains one of the the least expensive names in our medical device universe.