Boston Scientific (BSX)

By both methods, the value today (DCF $97 · Multiples $57) exceeds the market price ($47).

Today — fairly valued: at $47 trades ~17.3% below its value discounted to today (~$57); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($71) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$35.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($47) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-8.7%/year) than we project (7.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$3 bn of owner earnings in year 5 (vs ~$6.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

It is valued at the enterprise level, on a multiple of after-tax operating income, on the adjusted base the company itself reconciles — GAAP plus amortisation of acquired intangibles, restructuring and litigation charges, impairments and the costs of implementing the European medical device framework — the same metric and band (16-22×) used to value Abbott, Medtronic and Stryker in this library. On GAAP earnings the business would look artificially poor: in 2025 reported earnings were $2,898 million against $4,574 million adjusted, and the gap is almost entirely non-cash amortisation from a dozen purchases. Rolling grid: year 0 takes the real TTM revenue from XBRL ($20,614 million to March 2026) with the adjusted net margin for fiscal 2025 (22.79%), because adjusted earnings are a non-GAAP measure not published quarter by quarter in XBRL — the blend is stated, not hidden. ⭐ Year 1 is not extrapolated from the historical trajectory but from the company's guidance in force: revenue growth of 6.5% to 8.5% and adjusted earnings per share of $3.34 to $3.41 for 2026, cut from prior guidance of 10.5% to 11.5% on the slowdown and increased competition in left atrial appendage closure (WATCHMAN) and in electrophysiology. The path starts at +7.5% (the midpoint) with earnings per share of $3.38, inside the guided range, and decelerates smoothly towards +6.1% at year 5. The bridge is not zero, and that is why the metric is pre-interest: capitalising adjusted earnings — which already have interest deducted — and also subtracting the debt would count the funding twice, so the multiple goes on after-tax operating income and the debt is subtracted once, in the bridge. It does not accumulate cash: retained flow is committed to the pending purchase of Penumbra. The cash ($539 million) and the debt ($12,624 million) in the bridge are those on the balance sheet at the year-0 close (Jun 30, 2026), above the $11,436 million of debt in fiscal 2025.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $71 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $47, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $71 in 5 years and a required return of 4.5% annually, the maximum to pay today is $57. Against the current market price ($47), the margin of safety is 17.3% (trades below the maximum → there is margin) and the total return at that price would be 8.5% annually.

• Entry multiple vs. band. 17× EV/NOPAT today, against the medical device band [16-22x] — no multiple discount.
• Decline in the stock. A substantial decline that the guidance cut does not fully explain with the available data.
• Forward multiple compression. Today's EV/NOPAT compresses from 17× to 12× by year 5 in the base case, as the business grows into the value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (111%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. ~9%, just below the 10% bar, on invested capital of ~$35.4bn (equity $25.9bn + debt $11.4bn − cash). Goodwill from acquisitions weighs on the denominator.
• Cash conversion. Operating cash flow (~$4.3bn TTM) comfortably exceeds reported net income, which is distorted by non-recurring charges.
• Stock-based compensation. ~1.5% of revenue (TTM) — low, does not introduce a material dilution trap.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The 10-K reports two segments: Cardiovascular and MedSurg, which together reconcile to consolidated revenue; Endoscopy, Urology, and Neuromodulation are the franchises that make up MedSurg, not separate segments. The MD&A does not break out operating income by segment, so the three indicators shown are consolidated levels for the most recent periods — revenue, operating income, and operating cash flow — taken directly from XBRL, with no extracted rates.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic growth. +15.8% in FY2025, ex-FX and M&A — low double-digit, with Cardiovascular as the engine.
• Reliance on acquisitions. A meaningful share of recent reported growth comes from bolt-ons (Axonics, among others).
• Reinvestment runway. High-growth adjacencies (lithotripsy, renal denervation, thrombectomy via Penumbra) still to be scaled.

• Recurrence of demand. Implantable devices and consumables used continuously in non-discretionary medical procedures.
• Product differentiation. Verifiable leadership in WATCHMAN and FARAPULSE, categories with few direct competitors.
• Pricing power. Partial: consolidation of healthcare purchasers and competitive bidding pressure pricing in mature categories.
• Single-customer or single-payer exposure. Diversified customer base (hospitals and health systems across 127 countries), with no material concentration disclosed.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)107.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 111% of ROIC
• !Value creation (ROIC − 10% bar)+3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.6x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Credit rating. Investment grade from all three agencies (Moody's, S&P, Fitch) as of year-end 2025.
• Leverage. Net debt ~US$3.4bn today, with a maximum-leverage financial covenant; it rises with the Penumbra financing.
• Liquidity. Cash and equivalents of $0.54bn as of June 2026, plus recurring operating cash flow.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Leadership continuity. The same CEO signs the 10-K as Chairman of the Board, President, and Chief Executive Officer.
• Capital allocation. No dividend or buyback; capital is directed to innovation and active acquisitions (Axonics, Bolt Medical, SoniVie, Penumbra pending).
• Director and executive share ownership. The group of 18 people together own less than 1% of shares — low direct alignment via ownership.

• Forced selling on the guidance cut: the company lowered its 2026 revenue growth outlook to 6.5%-8.5% from 10.5%-11.5% and its adjusted earnings-per-share outlook to $3.34-$3.41, and the market violently repriced a stock that had been valued to grow at a high double-digit rate.
• The accounting result amplifies the punishment: 2025 GAAP earnings ($2,898 million) are 37% lower than adjusted earnings ($4,574 million) due to intangible amortization, restructuring, litigation, and impairments — charges that are mostly non-cash and depress the headline number without consuming cash.
• Pending uncertainty from the Penumbra acquisition: $14.8 billion with about $11.0 billion of new debt, a second request for information from antitrust authorities delaying the close, and stated dilution to earnings per share in the first full year.

The source of the discount is identified and real, not a misunderstanding: the company is in fact growing less than expected. The question is not whether the market was wrong to lower the price, but whether it lowered it too much — and at 17× the adjusted result of a business still growing at a low double-digit rate, with the cut guidance already built into the base case, the answer is that it probably did.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -2%/year (-11% total): the margin of safety protects the downside. The bull (+15%/year, +100% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Low-cost competition. Low-cost manufacturers, particularly in China, with a local-supplier advantage in competitive bidding.
• Reimbursement pressure. Medicare/Medicaid reforms and payment system reforms in other markets can reduce procedure reimbursement.
• M&A leverage. ~$11.0 billion of new debt to finance the pending Penumbra acquisition.
• Litigation without third-party coverage. Substantially self-insured against product liability and intellectual property claims.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 13% above the 10% bar, but the margin is limited (+17%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a multiple/growth of 2.5 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 13% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -9% vs our 7%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -2%/yr, bull-scenario ceiling +15%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, switching costs, efficient scale → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -9%, within what we project (7%) — the story squares with the numbers.