In this article, let's take a look at Becton, Dickinson and Company (BDX), a $22.23 billion market cap company that provides a wide range of medical devices and diagnostic products used in hospitals, doctors' offices, research labs and other settings.
A Leader
The company has provided good returns on capital in the past, so we don´t fear with recent performance. We believe it will maintain its leading positions and return to its historical growth.
Major products in the core medical systems division (53.4% of fiscal 2013 sales), provides it with huge cash flows for reinvestment into its business. Further, a substantial difference with its peers is the strong focus the company has on emerging markets, regions which are expected to generate approximately 25% of the total sales by 2017.
The firm faces price risk due to the current environment with certain pressure in commodities prices. So it is a must to continue having an operational discipline to maintain its earnings growth.
R&D and Acquisitions
Research and development spending last year reached $494.6 million (about 6% of sales), compared with $470 million in the previous year. Through a series of acquisitions, the firm expands its scope. In 2011, it acquired Accuri Cytometers, Inc., a developer and manufacturer of personal flow cytometers for researchers. In the same year, it acquired Carmel Pharma, AB, a Swedish company that manufactures the PhaSeal System. Two more acquisition happened in 2012: In August it acquired Sirigen Group Ltd., a developer of polymer dyes used in flow cytometry and in December, Safety Syringes, a developer of antineedlestick device for prefilled syringes.
Attractive Dividend Policy
Becton Dickinson has an attractive dividend policy showing its commitment to return cash to investors in the form of dividends, as it generates healthy cash flow on a regular basis. The current dividend yield is 1.9%, which is quite good to protect the purchasing power, especially considering the consistency of track-record dividends payments and favorable expectations regarding dividend growth for the next years. Dividends have been paid since 1926.
Revenues, Margins and Profitability
Looking at profitability, revenues increased by 9.86% and led earnings per share to increase in the most recent quarter compared to the same quarter a year ago ($1.08 vs $1.01). During the past fiscal year, the company reported lower earnings of $4.52 versus $4.93 in the prior year. This year, Wall Street expects an improvement in earnings ($4.85 versus $4.52).
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| BDX | Becton, Dickinson and Company | 19.09 |
| GIB | CGI Group Inc | 18.07 |
| DOX | Amdocs Ltd | 12.30 |
| IT | Gartner Inc | 65.84 |
| TDC | Teradata Corp | 19.67 |
| IGTE | Igate Corp | 122.78 |
| Industry Median | 8.62 |
The company has a current ROE of 19.09%, which is higher than the industry median and the ones exhibited by CGI Group (GIB) and Amdocs (DOX). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Teradata (TDC) could be the option. For more attractive ROE, Gartner (IT) and Igate (IGTE) have extremely good ratios. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 24.1x, trading at a discount compared to an average of 33.9x for the industry. To use another metric, its price-to-book ratio of 4.10x indicates a premium versus the industry average of 2.90x while the price-to-sales ratio of 2.70x is below the industry average of 2.85x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $17,891, which represents a 12.3% compound annual growth rate (CAGR).
Final Comment
As outlined in the article, Becton Dickinson is the world's largest manufacturer and distributor of medical surgical products and continues to generate steady cash flows, keeping itself as an industry-leading dividend.
The PE relative valuation and the return on equity that significantly exceeds the industry average and make me feel bullish on this stock.
Hedge fund gurus Jean-Marie Eveillard (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), John Hussman (Trades, Portfolio), Jim Simons (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Richard Pzena (Trades, Portfolio) and Donald Yacktman (Trades, Portfolio) added this stock to their portfolios in the second quarter of 2014 as well as Manning & Napier Advisors, Inc.
Disclosure: Omar Venerio holds no position in any stocks mentioned
Also check out: Donald Yacktman Undervalued Stocks Donald Yacktman Top Growth Companies Donald Yacktman High Yield stocks, and Stocks that Donald Yacktman keeps buying Jim Simons Undervalued Stocks Jim Simons Top Growth Companies Jim Simons High Yield stocks, and Stocks that Jim Simons keeps buyingAbout the author:Omar VenerioWe provide independent fundamental research and hedge fund and insider trading focused investigation. Currently 2.50/51
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