NATICK, Mass. ( TheStreet) -- Shares of Boston Scientific ( BSX) were given a minor jolt on Tuesday. Is it just the calm before a plague of locusts descends on the embattled medical technology company?

The locust question, posed by BMO Capital Markets analyst Joanne Wuensch in a research note released on Tuesday morning, should serve as the rhetorical highpoint in the capital markets frustration with the medical technology sector's one-time (and seemingly more distant every day) comeback story.

"We thought BSX was testing a bottom, but we were wrong.... While our turnaround keeps getting extended, we wonder what else can go wrong, locusts?" the BMO analyst wondered.

The good news, given the slim odds of such a biblical plague, is that the locust question is one question that can actually be answered. Beyond that, however, the analyst community is not sure about the pace of Boston Scientific's much-anticipated turnaround after its latest market shock.

More questions than answers seemed to be the takeaway message from the Street concerning Boston Scientific, a point made by both BMO Capital Markets and Wells Fargo Securities in research notes released on Tuesday. It wasn't just a thematic point. BMO had a half-page of bullet-pointed questions in its research note.

At the very least, both BMO and Wells Fargo reduced their price targets for Boston Scientific. In the case of Wells Fargo, it took down the price target from $8-to-$9 to $7-to-$8; while BMO Capital Markets has dropped its price target from $10 to $8.

At the same time, BMO Capital raised its price targets on ICD competitors St. Jude Medical ( STJ) and Medtronic ( MDT).

Boston Scientific shares lost more than $1 on Monday, opening at $7.78 and closing the first day of the trading week at $6.80, an approximate one-day loss of 13%. On Monday, a whopping 224 million shares of Boston Scientific were traded. For a company with an average daily volume of 32 million, that level of trading represented not just panic, but ultimately, longer-term concerns about Boston Scientific's ability to recover from its latest stumble.

Over the weekend, Boston Scientific announced that changes in its implantable cardiac defibrillator (ICD) manufacturing process were not approved by the FDA, and it had to take the ICD product off the market.

After its biblical plague-like disaster day on Monday, Boston Scientific began Tuesday receiving a downgrade from Goldman Sachs. However, the damage had already been done, and Boston Scientific shares actually ended Tuesday up over 4% to a closing price of $7.09, on half the level of Monday's trading volume, though still a day of more than 124 million shares traded.

St. Jude Medical shares -- which gained 8% on Monday -- closed on Tuesday in marginally negative territory. Shares of Medtronic -- which were up 4% on Monday -- ended Tuesday down approximately 1.5%.

St. Jude has less total exposure to the ICD market than Medtronic; however, in terms of relative business, it has the larger percentage of revenues to gain from Boston Scientific losses. Gabelli & Co. health care analyst Jeff Jonas estimated St. Jude's ICD market at 20% of annual revenues, while for Medtronic, the ICD market represents a low double-digit percentage of revenues.

For Boston Scientific, its current share of the ICD market represents 15% of its revenues. In the fourth quarter, sales of ICD products in the U.S. were $307 million and close to $1.3 billion for the year.

The short-term issue is clear: analysts have estimated a $25 million revenue loss per week for Boston Scientific as long as the ICD is off the market. Worse, there is no precedent for estimating when the situation can be remedied between Boston Scientific and the FDA. Boston Scientific has provided no timeline for a resolution.

BMO Capital Markets estimates that for each 30 days that the ICD product sales are suspended, it will lose exactly $106 million and two cents of earnings per share.

Wells Fargo wrote on Tuesday that it believes the FDA usually takes 30 days to approve these types of changes and it's possible that the FDA and BSX will work together to get this done in less than 30 days, given the importance of the ICD in the U.S. market. However, Wells Fargo was frank in not being able to really offer anything more than an educated guess: "It's also possible that it could take longer. We just don't know right now and BSX management was unwilling to commit to any turnaround time."

BMO Capital Markets analyst Wuensch wrote that she wasn't even aware of another situation like the Boston Scientific one, and offered that if it requires a pre-market approval (PMA) submission with the FDA, that could take anywhere from 30 days to 135 days from the time of submission.

Wells Fargo estimates the 30-day loss at $150 million. Maybe more importantly, Wells Fargo estimates that for each 30 days that the Boston Scientific ICD is off the market, 5 market share points are lost to St. Jude and Medtronic.

BMO Capital estimates that for every 30 days that Boston Scientific's ICD line is off the market, Medtronic gains between one and two cents of earnings, and St. Jude gains four to five cents of earnings.

But that's not the big question. BMO Capital's Wuensch described 2010 as a "lost year" for Boston Scientific. Wells Fargo estimates that if a 5% market share loss for Boston Scientific occurs, that translates into $219 million of lost revenue in 2010.

What analysts who cover Boston Scientific are really worried about is permanent damage to the company's reputation that translates into a permanent loss of market share.

All the analysts noted that Ray Elliott took over the reins at Boston Scientific with a reputation for engineering health care turnaround stories. It is Boston Scientific's reputation, however, that continues to face larger headwinds.

Gabelli's Jeff Jonas said that Elliott has already made a few missteps previous to the ICD crisis. He came in last year with long-term growth targets that he ended up having to backtrack on, and in the fourth quarter, Boston Scientific lost a significant number of sales people. What's more, the fourth quarter performance of Boston Scientific was a disappointment to the Street.

Gabelli's Jonas says that Elliott deserves another six months, but the small issues have grown into larger issues and Elliott's reputation is no longer the shield it once was for Boston Scientific stock. Ultimately, even though the latest ICD crisis is an administrative issue, "the buck has to stop with him," the Gabelli analyst said.

What's more, the Gabelli analyst noted that Boston Scientific's current debt load is not insignificant -- a little under 25% with close to $6 billion in debt versus total assets of $25 billion at the end of 2009. At some point, revenue losses of $25 million a week are not insignificant when considering the financial strength of the company.

"It's a credibility issue, a reputation issue, and even becomes a financial issue because everything becomes magnified in this situation," the Gabelli analyst said.

Wells Fargo analyst Larry Biegelsen wrote along similar lines in his research note: "It's unclear how BSX will compensate and retain its sales reps while it's off the market. Physicians with whom we spoke were very concerned about this issue despite the administrative nature of the sales suspension. Physicians believe that patients will be less willing to get a BSX device following this incident."

"It just adds to the snowball effect. There are doctors who have expressed dissatisfaction with Boston Scientific, and we've heard that morale is at a low among its sales force," one health care investor who cannot be quoted on individual companies said. "You can say this ICD issue is just about paperwork, or administrative in nature, sure, but these things gradually build and extend into an investor view that can change for the long-term," the investor said.

BMO's Wuensch noted in her locust-note that it was after the fourth quarter conference call that BMO lowered its estimates for Boston Scientific and began to wonder whether the stock was a turnaround or a value trap.

BMO Capital Markets is not ready to categorize Boston Scientific shares as a trap. BMO's Wuensch is staying at an outperform on Boston Scientific and focusing on 2011. The analyst estimates that if BSX loses 50% of its projected $1.4 billion in 2011 ICD sales, earnings per share will be 38 cents, versus a current BMO estimate of 52 cents per share. The current estimate represents 15% upside in the shares are a stock price of $7.80.

The best-case scenario views Boston Scientific's further fall from grace as a signal to buy on the upside; even if Elliott's turnaround magic seems as if it's a disappearing act, it could just as likely lead to 2011 opportunity in the depressed stock.

Gabelli's Jonas, who maintains buys on St. Jude and Medtronic and already has Boston Scientific at a hold, said he thinks the latest woes for Boston Scientific could in fact strengthen the investing case for the company. "The valuation was already low, and now it's even lower, and this could actually help to provide a floor. Still, I need to see a few good quarters before I would consider changing my outlook," Jonas said.

There is also the case of BMO Capital's Wuensch, who thought Boston Scientific shares were previously testing a bottom. If Boston Scientific's floor includes a trap, let's hope at least it can be designed to catch some locusts.

-- Reported by Eric Rosenbaum in New York.


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