Dec 12, 2019
Investment Idea # 3:
BUY BECTON, DICKINSON AND COMPANY (BDX US)
Trade parameters:
Entry price: $250-$260
Stop loss: Below $245
Exit price: target 1 — $295, target 2 — $315
Investment horizon: 6- 12 months.
Becton, Dickinson & Co, Company Description and Business Overview
A medical supply firm was founded by Maxwell Becton and Fairleigh Dickinson in New York in 1897, which moved to New Jersey in 1907 and soon became the first hypodermic needles producer in the US. Currently, Becton, Dickinson and Company is a global medical technology company and operates in three major segments: BD Medical, BD Life Sciences, and BD Interventional.
In BD Medical segment the company produces syringes, catheters, and injection devices and supplies them to medical institutions in over 50 countries across the globe. The segment generates more than 50% of total revenue. BD Life Sciences (over 25% of total revenue) focuses on the production and supply of equipment for blood collection and cell analysis, and automated diagnostic platforms. Lastly, BD Interventional, generating 20% of the revenue, supplies catheters, stents, and grafts in three key areas: surgery, peripheral intervention, and urology.
Becton and Dickinson established Fairleigh Dickinson Junior college in 1942 (now Fairleigh Dickinson University).
Becton, Dickinson & Co, Growth Outlook
Becton’s growth strategy is the same strategy many other medical equipment companies implement, which is to improve its operational effectiveness, to develop new lines of products, to offer extensions for existing medical platforms, and acquire companies to supplement its organic growth.
In 2017 Becton, Dickinson & Co made a strategic acquisition of CR Bard Inc, a company that had been in the medical device business more than a century, for over $24bn. As a result of the synergy from this deal, BD’s organic growth has accelerated via Bard’s strong portfolio of products. We believe that the company’s operating model will continue to evolve, generating even higher revenue growth in the coming years.
Table 1. Becton Dickinson’s Recent M&A History
In the near future, the company is planning to launch BD Intevia — a device to connect syringe and auto-injector technology and Arctic Sun Stat — non-invasive targeted temperature management system. Also, it is waiting for the regulatory approval for its BD COR high throughput molecular system. We expect that the launch of these products, along with a series of other products in the pipeline will increase BD’s customer base and boost revenue growth.
Additionally, Technavio has recently released a report indicating that the global cell separation market will grow by 7.12bn (17% CAGR during the forecast period) during 2020–20204, which is another signal of growth potential for Becton Dickinson
Graph 1. Global Cell Separation Market 2020–2024
Graph 2. Becton, Dickinson & Co, Emerging Market Revenue
Becton Dickinson’s revenue from emerging markets has been gradually increasing for the last couple of years. As can be seen from the graph above, the company’s big portion of emerging market revenue, more than 40%, is generated in China. Medical policies in some Chinese provinces, as well as well-known tariffs, have been the headwind to the company’s performance lately. The management expects these adversaries to continue throughout 2020 and result in the decrease of future EPS.
Table 2. Becton, Dickinson & Co, Key Financial Statistics.
It can be seen from the table that BD’s total revenue has been increasing gradually during the last four years. A sudden jump in revenue number in 2018 was due to the earlier acquisition of Bard. On a year-over-year basis, the company reported revenue growth of 8.2% during the last report. Its net income has also been increasing accordingly during the same period. BD’s heavy debt load may worry some investors, but should the company’s revenue continue to grow consistently, it will have no problem with paying it out. Free cash flow is projected to grow by about 50% in two years time, which indicates that the company is on the right track.
Table 3. Becton, Dickinson & Co, Dividend history
Becton Dickinson has a long history of returning the capital to its shareholders through dividends. It has consistently been increasing its dividend payouts for almost 40 years now. During a recent interview, the management said that the company will remain committed to its dividend policy in the future, in spite of significant leverage constraints from CareFusion and Bard acquisitions.
Table 3. Becton, Dickinson & Co, Valuation Metrics Against Its Peers
Valuation metrics table demonstrates that Becton, Dickinson & Co is significantly undervalued by each parameter, compared to the industry average. The low valuation of the equity is probably due to the investors’ worries about the uncertainties around the medical policies in China and the company’s lofty amount of debt. We believe that the company will be able to overcome these challenges in the years ahead, and use the low valuation as an opportunity to add the shares of the company to our mid-term portfolio.
Graph 1. Becton, Dickinson & Co, Stock Price Movement
With some fluctuations, BD’s stock price has been in an uptrend move for a long period of time. The price reached a peak of $265.87 on October 1 last year. After that, the price retraced over 25% to re-test its previous breakout level. We can see that the chart has been forming an ascending triangle since then. A classical chart pattern suggests a further breakout above the previous highs and a continuation of an uptrend. The fact that price is above its 50–100 and 200- day Moving Averages increases the probability of that scenario.
The Bottom Line
We believe that Becton, Dickinson & Co is a potential growth company with a long history, which will generate high returns in the near future, along with the consistent dividend payouts. The company has some uncertainties regarding Chinese regulation and tariff issues. But we expect that these adversaries will be overshadowed by its new product launches and the positive effects from the synergies. Therefore, we have included the shares of the company in our mid-term portfolio.
Disclosure
The purpose of this publication is to share the knowledge and experience we have in the field of finance and investment. Every week, we are going to provide the audience with updates on our stock market portfolio and share fundamental and technical analysis on companies, which are going to be included in our portfolio. Please, bear in mind that our publications do not offer investment advice, and nothing in them should be construed as investment advice or recommendation to buy or sell any financial security. Our publications provide only information and education for investors who can make their own investment decisions. To learn more about us, please go through the links provided below.
Keywords: FinTech, Finance, Investment idea, Becton, Dickinson & Co, Stock market.
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