Free cash flow guidance
On its third-quarter earnings conference call, Boston Scientific (BSX) said that it expected its adjusted free cash flow to be $1.9 billion in 2018. According to Boston Scientific’s 37th Annual J.P. Morgan Healthcare Conference investor presentation, it’s expected to report adjusted free cash flows of $2.15 billion and $2.4 billion in 2019 and 2020, respectively. These estimates imply a 13% compound average growth rate in the company’s adjusted free cash flow from 2018 to 2020.
According to Boston Scientific’s investor presentation, it had to reserve 65% of its adjusted free cash flow for settlements related to legal or tax audit issues from 2015 to 2018. However, in 2019 and 2020, the company expects to reserve only 5% of its adjusted free cash flow, giving it the freedom to deploy 95% of its remaining adjusted free cash flow in value-generating or value-returning activities.
According to the investor presentation, despite its increased financial flexibility, the company plans to ensure a high level of financial discipline in all of its investments and business development activities. It’s also focused on maintaining its investment-grade ratings in future years.
The company is targeting debt-to-EBITDA ratios of 2.6x, 3.3x, and 2.6x, respectively, in 2018, 2019, and 2020.
The above diagram highlights Wall Street analysts’ estimates for Boston Scientific’s effective tax rates from 2018 to 2020.
Tax rate projections
On its third-quarter earnings conference call, Boston Scientific said that it expected its effective and operational tax rates to be 12% and 13%, respectively, in 2018. However, according to the company’s investor presentation, unlike its previous projection of an operational tax rate of more than 15%, the company now expects its operational tax rate to be 13% in 2019 and beyond. The company expects to benefit from its robust tax reinvestment strategy as well as favorable tax rates in ex-US markets.
In the next article, we’ll discuss Boston Scientific’s improving revenue mix in greater detail.