Massively Disappointing Boston Scientific (BSX) Stock Could Be Due for a Comeback

As one of the ugliest names in the technical charts, Boston Scientific (BSX) has become quite toxic for shareholders. Since the beginning of the year, BSX stock has plunged more than 37%, practically erasing a mega-rally that began around late 2023. It’s also ranked as a 100% Strong Sell (unsurprisingly) by the Barchart Technical Opinion indicator. Common wisdom would suggest avoiding catching falling knives. However, a contrarian narrative could be lurking in the shadows.

At a glance, a large portion of the fallout can be attributed to Boston Scientific announcing the acquisition of Penumbra, a global healthcare company focused on innovative medical devices for neurovascular and peripheral vascular conditions. Fundamentally, the decision to buy the medical device specialist was a strategic intent to fill a massive portfolio gap and re-enter high-growth markets where Boston Scientific was previously underweight.

While the acquisition arguably made sense from a broader framework, shareholders didn’t seem thrilled with the underlying valuation, which priced the deal at $374 per share. Those apprehensions seemed justified after Boston Scientific released its first-quarter earnings report. Even though the company beat on revenue and earnings-per-share expectations, management ended up lowering its full-year adjusted EPS guidance.

One of the key problems is that Boston Scientific is losing share in the pulsed field ablation (PFA) market, where it faces rising competition. As well, the Penumbra acquisition is showing some friction in integration efforts.

Still, from a glass-half-full perspective, it may be a bit of a stretch to assume that a company of Boston Scientific’s quality will be unable to right the ship. Further, with BSX stock now trading at a forward earnings multiple of 17.79, it’s an idea that gets the speculative juices flowing. Roughly a year ago, BSX was trading at a forward multiple of nearly 37.

Of course, I don’t want to get into an ordinal comparison without considering the context. However, if you do believe the healthcare giant can get its act together, BSX stock does look an intriguing discount.

Justifying the BSX Stock Discount with an Inductive Analysis

Although the contrarian talking points for BSX stock may sound convincing, options traders looking to profit have a major obstacle to consider: this information has probably long been digested and baked into the share price. Put another way, the information is downstream (and dated), making the underlying edge questionable. To get around this dilemma, we may consider a discretized inductive angle to probabilistically pinpoint where BSX may end up in the near future.

Induction is simply a fancy term for pattern recognition and relies heavily on the uniformity of nature; that is, the future is likely to resemble the past. In other words, if you see a thousand white swans over a period of time, your observation will have you rationally conclude that the next batch of swans you see will likely also be white.

Of course, the caveat to this assumption is that mere observation alone does not logically deduce that all swans are white. As soon as a black swan appears, the assumed absoluteness of the prior observation implodes immediately. Still, all forecasts of the unknown future, such as fundamental and technical analysis, are necessarily inductive.

However, a known challenge among traditional analytical methods is the variability of inputs. Depending on user interpretations, significant debates can erupt over the discount rate applied to a fundamental model or the validity of a pattern for a technical model. Here, one solution is assigning inputs as discrete signals (which means assigning hard endpoints).

In my particular discretized model, I view the equities market as a series of Markovian transitions, where the behavioral state of the next 10-week period depends largely on the current 10-week state. Through this approach, we can better pinpoint how BSX stock is likely to react under specific conditions.

With Boston Scientific, my main argument is that when the underlying security faces prolonged bearish pressure, there is an observed tendency for BSX to benefit from buy-the-dip sentiments. As such, bullish speculators can potentially position themselves favorably before a sizable move upward.

Putting Theory into Practice

Let’s look at the real-world application of the model for BSX stock. On any given 10-week period, the chances of the healthcare giant providing a positive return is a bit above coin toss odds. Using a dataset that goes back to March 2004 — thus including a large number of bullish and bearish cycles — the exceedance ratio comes in at 52.8%. Out of 1,137 rolling 10-week sequences, 600 of them rose above the starting point.

In terms of forward distribution, over the next 10 weeks, BSX stock would be projected to land between $59.80 and $60.80, with probability density peaking around $60.30. In other words, if you were to bet on Boston Scientific simultaneously across 100 parallel universes, you would be profitable about 53 times — but usually only modestly.

However, we’re not particularly interested in trading BSX stock at random. Instead, we’re looking at the current behavioral signal. In the last 10 weeks, BSX printed only three up weeks, leading to an overall downward slope. Under this signal, the exceedance ratio shifts positively (albeit slightly) to 54.1%.

But the biggest takeaway is the forward distribution, which has a tendency of landing between $59 and $64, with probability density peaking at $62. As such, intrepid speculators may be intrigued by the 60/65 bull call spread expiring June 18. While the $65 strike may be a statistical stretch, the breakeven price for this spread lands at $62.05, providing a potential safety margin.