NEW YORK (TheStreet) -- After posting gains of more than 105% year-to-date, not only has the Street woken up to what Boston Scientific (BSX) has become, but investors are beginning to place strong bets on what management will do in 2014. At the risk of sounding too pessimistic, we've been down this road before. And it's only led to a dead end.
While there are meaningful signs that management, in particular new CEO Mike Mahoney, has moved Boston Scientific past some of its problems, I can't ignore that this company has spent the past decade lingering in perpetual restructuring mode, leaving investors in limbo of what direction management will take next. Billions of dollars spent on acquisitions have produced little-to-no growth.
I will grant that the company is in a much better position today than it was prior to Mahoney's arrival. But I have to question if the stock's strong year-to-date performance is a true reflection of investors' confidence. I don't believe that Boston Scientific has done enough over the past three quarters to suggest that it can outperform in the next 12 to 18 months, which is what these share gains presume.
Although third-quarter results were moderately better than the company's prior quarters, they were still no better than in-line performance. I'm inclined to believe Boston Scientific's recent stock gains have been the result of a wave of better-than-expected earnings seen from other med-tech giants like Medtronic (MDT), St. Jude Medical (STJ) and Stryker (SYK).
I expect investors will disagree. But given the deficits this company has been working with and the length of time it's been proclaimed the "best turnaround candidate," it will take more than "in line" results to earn back my trust. In fairness, it was encouraging that management was able to produce 4% organic growth, which was not only better than St. Jude, but it more than doubled Johnson & Johnson's (JNJ) device business.
Boston Scientific's devices, which are used in a range of interventional medical specialties, have been the strength of this operation for quite some time now. This quarter was no exception. Among management's long-standing challenges, however, has been a failure to find ways to secure better market share in the drug-coated stent market. This is despite Johnson & Johnson having exited that business several years ago.
With stent revenue posting a 6% decline this quarter, the struggle continues. Again, I don't want to belabor this point, but it's worth noting that the Street was equally excited two years ago when Johnson & Johnson essentially conceded the stent market. Boston Scientific (then) spoke positively about its ability to grow that business. These promises have never manifested themselves in meaningful results.
In that regard, I worry that the exuberance from the stock blurs not only the company's track record of underperformance, but also the market dynamics, which might keep Boston Scientific at a disadvantage. Not the least of which has to do with the fact that the company is in extensive cost-cutting mode as it plans to eliminate 6% of its workforce. Complicating matters, the company just announced that CFO Jeffrey Capello will be leaving at the end of the year.
For a market that often frowns on uncertainty, the company's future seems a bit murky. Bulls will argue that Boston Scientific deserves the benefit of the doubt. But with the stock up well over 100% this year, I believe Boston Scientific has exceeded all of its benefits. The Street seems completely sold on the possibility of a turnaround.
While investors may choose to ignore how hard it is to play catch-up in this cutthroat market, I have my doubts that Boston Scientific has the resources to retain the little share the company has left, much less outperform better-run companies like Abbott Labs (ABT) and Johnson & Johnson.
Now, I'm not saying that any turnaround for Boston Scientific will be impossible. But with operating income declining again this quarter, even amid cost-reductions, there are no quick fixes here. The stock was a good buy when expectations were low. Today, sentiment has changed. And I believe investors are betting too much by holding on to these recent gains, especially given the amount of credibility management has lost.
At the time of publication, the author held no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.