By Jacob Sonenshine
Boston Scientific is all about acquisitions. Its most recent one, which has so far hurt the stock, will eventually pay off. Investors should remain patient.
In our bullish thesis last October, we wrote how the $136 billion maker of surgical devices, centering on cardiac procedures, uses acquisitions as part of its growth strategy.
Well, its latest acquisition -- the aforementioned agreement to acquire Penumbra for $14.5 billion, which will likely close this year -- has pushed shares down. Boston Scientific is now down about 8% from when we published our recommendation.
This post-acquisition drop is common. Often, when a company announces it's purchasing an asset, its stock falls because the market is immediately concerned about the cost versus potential returns from the deal.
For this transaction, Boston Scientific will see earnings dilution, or lower profit versus if the deal hadn't happened, in the first year of integrating Penumbra. The acquisition is $11 billion in cash, with the rest coming in the form of an option for cash or stock. Boston Scientific will issue a small number of shares, pressuring earnings per share. Management said it would finance the cash portion partially with debt, which should add a few hundred million dollars of interest expense, further pressuring earnings per share. All in, these factors should outweigh the $200 million in 2026 net income analysts expect for Penumbra, causing what management expects to be dilution of seven cents per share.
Beyond the first year, Boston won't have to borrow more money and will benefit from Penumbra's earnings. Analysts were forecasting Penumbra to grow sales almost 15% this year to $1.58 billion according to FactSet. The majority of this revenue will come from its vascular segment, through which it sells a surgical product that removes blood clots. The growth is five percentage points more than Boston Scientific's long-term goal of a bit over 10%, so it will in the long term only improve the company's growth profile.
Beyond the basic math, this is yet another valuable deal that will help Boston Scientific maintain or increase its market share and boost long-term profit. One of its core products, Watchman, is an implant that closes the left atrial appendage of patients with non-valvular atrial fibrillation, or AFib. This significantly reduces the risk of blood clots. Now, Boston Scientific can sell hospitals its preventative product and Penumbra's after-the-fact product. This is an example of the company's larger strategy to essentially approach surgical teams with packages of products that serve related purposes to help the teams move the patient through the surgical process and achieve good outcomes.
The deal also aligns with management's goal of international expansion. On the postdeal announcement call with analysts, chief financial officer Jonathan Manson said international growth is one opportunity afforded by the acquisition. With about 40% of its sales coming from outside the U.S., Boston Scientific can use its global reach to accelerate Penumbra's international growth.
These types of synergies from acquisitions have enabled the company to remain one of the most competitive cardiac product makers, and grow sales by 14% annually in the past four years to $20.1 billion this year. Management outlined at its September investor day that it intends to continue the double-digit growth for the long-term. This is a relatively high growth rate that implies Boston Scientific is taking market share, given that multiple research reports say the global cardiac surgery device market should grow in the mid single digit percentages annually.
Overall, "the deal is highly complementary to Boston's Cardiology and Peripheral Intervention businesses and should be accretive to its organic growth," writes Needham analyst Mike Matson, who emphasized the potential for revenue synergies.
These synergies include costs, too. The company expects to eliminate redundant general and administrative costs, one factor that gives analysts the confidence to forecast a mild increase in operating profit margins over the coming five years.
That is why the market can expect aggressive EPS growth -- it's expected to land at 21% for 2025 -- and can lift the shares. They trade at about 26 times forward earnings, which is in the middle of the range in the past five years. While it's above the S&P 500's 22 times, a slight premium makes sense given the higher growth. As long as the company continues to execute and the multiple doesn't drop, higher earnings can bring the stock upward.
It will provide healthy gains. Hang onto it.
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January 24, 2026 01:18 ET (06:18 GMT)
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