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What’s BSX’s Capital Allocation Strategy Going Forward?

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Prioritized deleveraging efforts post-AMS acquisition

In August 2015, Boston Scientific acquired AMS’s (American Medical Systems) male urology business for $1.6 billion in cash and milestone-based payments of $50 million. The debt-funded acquisition impacted the company’s balance sheet and led to high debt levels.

The company is targeting the mid-2% leverage level by the end of 2016. Boston Scientific paid down $250 million worth of debt in 2Q16. The company also suspended share buybacks for 2016 following its AMS acquisition.

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Continued inorganic growth through tuck-in acquisitions

Boston Scientific continues to focus on tuck-in acquisitions as one of its major areas of investment. This helps the company to advance its category leadership strategy and expand its market share. Boston Scientific’s recent acquisitions include Cosman Medical to expand its neuromodulation business and CeleNova to strengthen its Peripheral Interventional business.

Boston Scientific continues to focus on tuck-in acquisitions and litigation payments as its major capital deployment areas. The company aims to enhance the depth of its product portfolio and to advance its category leadership growth strategy through small acquisitions.

Litigation settlements

In 2Q16, Boston Scientific prioritized investments toward debt repayment, tuck-in acquisitions, and litigation settlements. The company settled its transfer pricing litigation for around $275 million. Additionally, it settled almost half of its transvaginal mesh–related claims.

Some of BSX’s other major competitors, including St. Jude Medical (STJ), C.R. Bard (BCR), and Johnson & Johnson (JNJ), have faced heavy litigation charges due to similar product faults and recalls.

Investors interested in gaining exposure to Boston Scientific can invest in the First Trust Health Care AlphaDEX ETF (FXH). FXH has ~2.2% of its total holdings in BSX.

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