Shares of Boston Scientific Corp. sank to a five-year low today as investors discounted the cardiovascular device maker's plans to divest two of its businesses as part of a broad review of its portfolio.
On Thursday, Boston Scientific, which took on nearly $9 billion of debt to buy Guidant Corp. last year, said it would explore the sale of its Cardiac Surgery and Vascular Surgery businesses in order to pay down debt and focus on its core businesses.
Boston Scientific shares slipped 36 cents, or 2.8 percent, to $12.38 in midday New York Stock Exchange trade as the broad market rebounded.
"The announcement was no great surprise and pretty underwhelming," said David Heupel, a portfolio manager at Thrivent Investment Management, which does not own Boston Scientific shares. "People were expecting or hoping for a great more change than this."
Heupel echoed comments of many other analysts who say that their negative opinion of the company will not change until its two key markets stabilize.
Recalls and safety concerns in the markets for drug-eluting heart stents and implantable cardioverter defibrillators, better known as ICDs, have significantly hurt revenue for more than a year.
"How and when these markets stabilize are questions (management is) not answering," Heupel added.
Over the last three weeks, the company has signaled its intention to sell its NAMIC fluid management business, which recorded 2006 sales of $80 million, the Meadox vascular graft business, which booked 2006 sales of $86 million, and Guidant's cardiac surgery business, which had 2006 sales of $189 million.
Boston Scientific also recently announced its plans to sell its cochlear implant and drug delivery businesses back to the founders of Advanced Bionics, from which these businesses were bought.
"The common thread here is that all of these businesses came through acquisitions. Moreover, none of them are in Boston's view strategic," JP Morgan analyst Michael Weinstein wrote in a research note.
EP Technologies' catheter ablation business, which had 2006 sales of $140 million, may be the next business the company puts on the block, Weinstein said.
"What we're are going to be watching here at Fitch is how they handle their (drug-eluting stent) and (cardiac rhythm management) businesses and we'll be watching for the asset sales and see what the net effect is on debt," said Bob Kirby, a debt analyst at Fitch Ratings.
Rising interest rates could significantly affect Boston Scientific's interest expenses since rates on a large proportion of its debt are not fixed, he said.
Larry Biegelsen, an equity analyst with Wachovia, said he believes the company has the ability to reach 3.5 times debt to earnings before interest, tax, depreciation and amortization (EBITDA) by the end of the first quarter.
Doing so would bring the company into compliance with its debt covenants, he said, and efforts to divest businesses increase confidence in its ability to reach that ratio.
Biegelsen, in a research note, said the sale of Boston Scientific's Cardiac Surgery, Vascular Surgery, and Fluid Management businesses could yield $500 million to $600 million in pretax proceeds. (Reuters)