Boston Scientific Corporation (BSX), St. Jude Medical, Inc. (STJ), Medtronic, Inc. (MDT): This Medical Device Maker Seems to Be Quite Expensive

Since the beginning of the year, Boston Scientific Corporation (NYSE:BSX) has enjoyed a great rally, climbing from $5.90 per share to nearly $11 per share. Its year-to-date return is nearly 91%, much higher than the S&P 500’s return of only 18.60%. In the first quarter, while Joel Greenblatt and Paul Tudor Jones reduced their positions in this company, Leon Cooperman and Jim Simons increased their exposure to Boston Scientific Corporation (NYSE:BSX). Let’s take a closer look to see whether or not Boston Scientific Corporation (NYSE:BSX) is a good investment opportunity now.

Boston Scientific recovers from Guidant’s bidding war

Boston Scientific Corporation (NYSE:BSX) is considered a global manufacturer of medical devices, operating in seven main business divisions. Most of its revenue, $2.18 billion, or 30% of the total revenue, was generated from the Interventional Cardiology division, while the Cardiac Rhythm Management division ranked second, with more than $1.9 billion in sales. Since 2009, Boston Scientific Corporation (NYSE:BSX) has experienced consistently declining revenue, from $8.19 billion in 2009 to nearly $7.25 billion in 2012. Earnings have fluctuated in the range of $(2.89) per share to $0.29 per share during the same period. In the past twelve months, its revenue was $7.14 billion while EPS came in at $(3.28).

Boston Scientific Corporation (NYSE:BSX) has tried to recover from the bidding war with Johnson & Johnson (NYSE:JNJ) to takeover Guidant in 2006. The company paid as much as $27.2 billion to acquire Guidant, and a breakup fee of $700 million toJohnson & Johnson (NYSE:JNJ). At that time, the EBITDA multiple did not seem to be high, at around 7. Nevertheless, the company experienced product recalls and lawsuits, driving its share price down significantly. The market values Boston Scientific at as much as 22.37 times its forward earnings.

The highest valuation among its peers

According to Barron’s, Boston Scientific’s long-term growth rate was only 8.4%, a bit lower than the industry average of 10.6%. Moreover, Boston Scientific has a much higher forward earnings valuation than its peers, including St. Jude Medical, Inc. (NYSE:STJ) and Medtronic, Inc. (NYSE:MDT).

The market values St. Jude Medical, Inc. (NYSE:STJ) at a much lower valuation of 13.23 times its forward earnings. St. Jude Medical, Inc. (NYSE:STJ)’s operations focus on four main clinical areas — cardiac rhythm management, cardiovascular, neuromodulation, and atrial fibrillation. The company has been expanding its business in neuromodulation therapy with a $40 million equity investment in Spinal Modulation, which provides new pain management alternatives to patients. The acquisition allows St. Jude Medical, Inc. (NYSE:STJ) to become an exclusive distributor of Spinal Modulation’s Axium Neurostimulator System. Moreover, the company could acquire Spinal Modulation for up to $300 million plus certain revenue-based milestones.

For the full year 2013, St. Jude Medical, Inc. (NYSE:STJ) expects to earn around $3.70 to $3.73 per share. On a constant currency basis, the company’s adjusted EPS could grow as much as 11%-12%. At the current trading price, investors are getting a dividend yield of 1.90%.