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Boston Scientific Slumps on Earnings Warning

Boston Scientific (BSX) disappointed investors with a warning late Sept. 21 about its earnings during the three months ended Sept. 30.

The Natick, Mass.-based medical device maker now thinks its preliminary earnings per share (EPS) will range between 1 cent and 5 cents, and excluding acquisition-related charges, between 6 cents and 10 cents. The company did not give historical comparative numbers to clarify the meaning of its new forecasts, but the San Francisco research firm StarMine says that as of Aug. 17 the mean EPS estimate among 22 analysts tracking the firm had amounted to 16.5 cents.

Investors reacted to the news by dumping the stock, which sank more than 10% to $14.72 on the New York Stock Exchange.

Boston Scientific also estimated that its preliminary net income during the quarter will range between $90 million and $145 million, excluding $70 million after-tax charges related to the company's acquisition in January of the medical products and services company Guidant (GDT). Boston Scientific noted contraction in its businesses selling heartbeat monitoring products as well as stents, which are a kind of surgical instrument.

"While the third quarter was challenging, we made progress on a number of fronts, most notably the integration of Guidant and our quality initiatives," said Jim Tobin, president and chief executive officer of Boston Scientific, in a press release on Sept. 22. "We continue to focus on our strategy of growth and diversification."

Analysts seemed unconvinced and slashed their ratings recommendations. Standard & Poor's downgraded the stock to sell from hold on Sept. 22. S&P equity analyst Robert Gold thinks the company's sales weakness will persist into 2007 and expects the company to add cost cuts. But Boston Scientific "may also explore sale of recently-acquired assets to reduce debt," Gold said in a research note. He slashed his 12-month target stock price on the stock by $5 to $13 per share. (S&P, like, is owned by The McGraw-Hill Companies.)

Boston Scientific will announce its final results for the third quarter and have a conference call on Oct. 18.

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