Device tax, sluggish sales weigh on Boston Scientific, analysts say

July 15, 2013 by Arezu Sarvestani

Analysts at Fitch Ratings affirm Boston Scientific's BBB- rating, warning that efforts to cut costs and launch higher-margin products won't quite make up for sluggish sales and the impact of the medical device tax.

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Analysts at Fitch Ratings affirmed a BBB- rating on Boston Scientific (NYSE:BSX), predicting that cost-control efforts and new product launches won't be enough to make up for sluggish sales and the effect of the 2.3% medical device tax.

"The healthcare reform-related 2.3% excise tax on U.S. device sales, which was implemented in January 2013, is expected to pressure margins by approximately 1 percentage point," according to Fitch.

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Efforts to reduce costs and add higher-margin devices "will help to mitigate this risk," the analysts wrote, but "will not entirely offset the Affordable Care Act's (ACA's) 2.3% U.S. sales tax."

The global rating agency predicted "consistently solid" free cash flow for the next 12 months, but warned that relatively flat sales and industry-wide headwinds would keep the Boston Scientific's margins modest.

Fitch's Issuer Default Ratings (IDRs) define "an entity's relative vulnerability to default on financial obligations," indirectly suggesting a company's likelihood to resort to bankruptcy or other measures. A BBB rating indicates "that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity," according to Fitch.