Zacks Analyst Blog Highlights: Deutsche Bank AG, UBS AG, Goldman Sachs Group, Boston Scientific and Stryker

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Feb 03, 2011, 09:30 ET

CHICAGO, Feb. 3, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Deutsche Bank AG (NYSE: DB), UBS AG (NYSE: UBS), Goldman Sachs Group Inc. (NYSE: GS), Boston Scientific Corporation (NYSE: BSX) and Stryker Corporation (NYSE: SYK).

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Here are highlights from Wednesday's Analyst Blog:

Deutsche Bank Cautions

Deutsche Bank AG (NYSE: DB) has cautioned about its fourth quarter 2010 earnings. The company expects earnings to decrease from the prior-year quarter on the back of acquisition-related costs and restructuring expenses.

In a preliminary guidance issued earlier this week, the company announced that it expects net income of around euro 600 million ($817 million), compared with euro 1.3 billion in the year-ago period. However, the prior-year quarter figure reflects special tax items.

Deutsche Bank expects its total revenue to increase to euro 7.4 billion from euro 5.5 billion reported in the comparable quarter prior year. However, consolidation of the Deutsche Postbank AG and acquisition-related costs coupled with investments made to restructure its investment banking division pushed up its non-interest expenses to euro 6.3 billion from euro 4.2 billion reported a year ago.

Deutsche Bank is scheduled to release its detailed fourth-quarter and full-year 2010 results on February 3. The company is in fact the first of the major European banks reporting this month. UBS AG (NYSE: UBS) is scheduled to report its fourth quarter results on February 8.

Our Take

Results were diverse for the investment banks in U.S. Goldman Sachs Group Inc.'s (NYSE: GS) fourth quarter 2010 with earnings per share of $3.79 outpacing the Zacks Consensus Estimate of $3.73. In spite of challenging economic conditions, the company gained from a solid balance sheet and global client base. Goldman's results were, nevertheless, affected by poor performance in investment banking business and significantly higher operating expenses.

Deutsche Bank has adopted several strategic initiatives including the repositioning of its core business, bolstering of capital levels, opportunistic acquisitions and investments in organic growth. While such initiatives augur well, the costs associated with such efforts cannot be denied either.

Going forward, though we expect the company to post a growth in earnings, we think any significant improvement will be necessarily restrained by the tardy recovery in the overall economy.

Boston Scientific Beats

Boston Scientific Corporation (NYSE: BSX) reported an EPS of 15 cents during the fourth quarter of fiscal 2010 compared to a loss of 71 cents per share in the year-ago period. However, after considering some adjustments, the EPS was 20 cents, beating the Zacks Consensus Estimate of 10 cents although remained unchanged from the year-ago quarter. For fiscal 2010, the adjusted EPS came in at 69 cents compared to 78 cents in the previous year.

Revenue of $2,002 million during the quarter surpassed the Zacks Consensus Estimate of $1,989 million. However, compared to the fourth quarter of 2009, sales declined 4% on reported basis and at constant exchange rates (CER). For the full year, Boston Scientific reported sales of $7,806 million, beating the Zacks Consensus Estimate of $7,793 million. The company recorded a 5% decline in sales compared to the previous year.

Despite a decline in revenue, Boston Scientific was able to maintain its bottom line due to 200 basis points improvement in gross margin (67%). Moreover, operating expenses (excluding one-time items) was almost unchanged at $945 million. However, operating margin came down marginally to 19.8%. A 12.2% decline in interest expenses also contributed to the improvement in margin.

Segments contribution

Boston Scientific derives the maximum contribution from Cardiovascular which recorded a 7% year over year decline in sales to $813 million. While sales from Interventional Cardiology declined 9% to $641 million, Peripheral Interventions increased 2% to $172 million. Global sales of coronary stent system (within Interventional Cardiology) at $409 million declined 9.7% driven by lower sales of both drug-eluting stents (DES, 8.3% to $377 million) and bare-metal stents (23.8% to $32 million). It is encouraging to note that the company maintained its leadership position in the global DES market with 35% share and 46% in the US market.

The next biggest contributor to Boston Scientific's top line, Cardiac Rhythm Management (CRM), recorded a 7% decline in sales to $564 million. Lower sales in both defibrillators (5.8% to $423 million) and pacemakers (10.8% to $141 million) contributed to the overall decline. Other segments of the company – Electrophysiology, Neurovascular, Endoscopy, Urology/Women's health and Neuromodulation recorded sales of $36 million (down 4% year over year), $92 million (up 3%), $284 million (up 6%), $127 million (up 3%) and $86 million (up 8%), respectively.

In order to realign its portfolio, Boston Scientific in January 2011 divested its Neurovascular business to Stryker Corporation (NYSE: SYK) for $1.5 billion. Subsequently, in January, the company prepaid $600 million of senior notes (June 2011) and $250 million of notes at maturity thereby reducing its debt burden.

Guidance

Boston Scientific also provided guidance for fiscal 2011. The company expects revenue and adjusted EPS in the range of $7,500-$7,900 million and 50-60 cents, respectively. The Zacks Consensus Estimate for revenue and adjusted EPS stand at $7,821 million and 41 cents, respectively. The revenue guidance assumes a $258 million negative impact from the divestment of Neurovascular business. The recently announced acquisitions are expected to dilute the bottom line by 3-4 cents per share and the divestment of business by 6 cents.

For the first quarter of fiscal 2011, Boston Scientific expects to report adjusted EPS of 7-10 cents on revenue of $1,825-$1,925 million. While the Zacks Consensus Estimate of 10 cents is at the upper end of the guidance, $1,937 million of revenue is higher than the company's outlook.

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