BUY OR SELL: Is new CEO reason to buy Boston Scientific?

By Debra Sherman

CHICAGO (Reuters) - Boston Scientific shares are holding just under their 8-month-highs after the medical device maker said that it retained industry veteran Ray Elliott to take the reins from long-time CEO Jim Tobin.

The announcement, greeted enthusiastically by Wall Street, came on the back of news a week earlier that a Boston Scientific-sponsored clinical trial met its main goal.

For the past few years, Boston Scientific, which acquired its cardiac rhythm management business when it bought Guidant Corp in 2006, has been beset by a heavy debt load, product recalls and trouble with health regulators, resulting in lost market share. Shares stumbled to levels not seen since 1998.

Recently, the company shed some of its non-core businesses, using the proceeds to pay down debt. It has also resolved its major quality issues with regulators, clearing the way for some successful cardiac rhythm management product launches.

"WORST DEAL IN HISTORY"

"A deal that was viewed to be by many as the worst deal in the history of mankind just about two years ago, three years ago has proven to be our growth engine as we thought it would be," Chief Financial Officer Sam Leno told investors at a recent conference.

"And I contend that as we fast forward, if you were to look back at this business and look back at that acquisition in April of 2006, five years from now, it will prove out to be the most strategic acquisition that we could have done," he added.

Elliott, who served as CEO at orthopedic device maker Zimmer Holdings while Leno was CFO at Zimmer, said he wants to diversify, expanding Boston Scientific's presence into other areas such as urology, gynecology and women's health.

The shares, holding just under $10, are up about 33 percent so far this year but are still down from about $14 last summer and down sharply from a peak of over $44 in 2004.

With the price still low, is now the time to buy?

BUY:

Morningstar analyst Debbie Wang said she was optimistic about the company under Elliott and pegs fair value at $18, with a three-year time horizon.

"He and Sam Leno did a fabulous job of integrating the Centerpulse acquisition (into Zimmer) and wringing out costs.

"Leno convinced everyone to cost-cut (at Boston Scientific). That started right after he joined the company. He started prepaying debt, streamlining to get rid of ancillary businesses, and improved the balance sheet. It's now in a much better situation than they were two years ago," she said.

Looming over all medical companies is the prospect of healthcare reform, but she said it's unlikely medical technology firms will bear the brunt of it. "Drug companies, hospitals and managed care companies are far more vulnerable."