This stock has moved mostly sideways since a 2018 acquisition, partly because the COVID-19 pandemic forced hospitals to delay routine procedures.
Now that the pandemic has eased, the company aims to fuel its growth with new products and better productivity. The company’s core R&D and cost-cutting strengths bode well for the future and make it a top pick.
The stock trades at 19.5 times the company’s 2023 earnings forecast.
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Becton Dickinson & Co.(Symbol BDX on New York; www.bd.com) is a leading maker of medical devices and supplies for hospitals, clinics and pharmaceutical research firms.
The company operates through three main businesses:
Medical (47% of fiscal 2022 revenue, 44% of earnings) makes an array of devices for hospitals, doctors’ offices and other clients in health care.
Life Sciences (29%, 34%) makes products for collecting and shipping specimens as well as equipment for detecting diseases.
Interventional (24%, 22%) makes a variety of vascular and urology devices.
The company sells its products in over 190 countries. The U.S. is Becton’s largest market, accounting for 57% of total revenue. Its other main markets are EMEA (Europe, Middle East and Africa), 21%; Asia, 16%; and the remaining, 6%.
In its fiscal 2023 first quarter, ended December 31, 2022, Becton’s revenue fell 2.8%, to $4.59 billion from $4.72 billion a year earlier. That decline was mainly due to lower demand for the company’s COVID-19 testing equipment as the pandemic eased. If you factor out those COVID products and currency rates, revenue improved 3.0%.
Overall earnings from ongoing operations (excluding its spinoff embecta) fell 10.5% in the quarter, to $1.70 a share (or a total of $509 million) from $1.90 a share (or $568 million).
When you disregard all unusual items, Becton’s earnings fell 6.5%, to $2.98 a share from $3.17. Factoring out exchange rates, per-share earnings fell 4.7%.
The lower earnings are mainly due to higher costs for raw materials and pension expenses; they offset a lower income tax bill.
Becton typically earmarks about 6% of its revenue to improving its current products as well as developing new ones.
In fiscal 2022, it launched 25 new products. Those include BD Effivax, a new glass syringe for vaccines that is cheaper and more reliable than competing models. Becton also launched a new cloud-based software platform that helps medical researchers improve the efficiency of their experiments.
Under its BD 2025 growth strategy, Becton aims to launch over 100 new products by the end of fiscal 2025. It also expects 25 of them to generate individual annual revenue in excess of $50 million. Another 20 or so should bring in $30 million to $50 million in revenue a year.
Another element of the BD 2025 plan includes simplifying the company’s manufacturing procedures and improving efficiency. It plans to invest about $1 billion annually in its facilities and other operations.
The higher revenue from Becton’s new products and cost savings should give it more room to pay down its debt and keep rewarding investors.
Its long-term debt as of December 31, 2022, was $14.27 billion. That is a moderate 21% of its market cap. The company also held cash of $612.0 million.
Becton has increased the annual dividend rate for investors each year for the past 51 years. The latest increase came with the December 2022 quarterly payment of $0.91 a share, which was 4.6% higher than the previous payment of $0.87. The new annual rate of $3.64 yields 1.5%.
For all of fiscal 2023, the company expects its revenue will range from $19.1 billion to $19.3 billion. That’s up from its earlier forecast of $18.6 billion to $18.8 billion.
Becton also lifted its full-year earnings forecast to between $12.07 and $12.32 a share; that’s up about 2% from its previous guidance of $11.85 to $12.10 a share.
The new range represents an increase of about 7.5% over fiscal 2022 earnings. Excluding currency rates, Becton expects earnings per share will rise between 9% and 11% in fiscal 2023.
The stock trades at 19.5 times the midpoint of its new range. That’s a reasonable multiple in light of Becton’s high research costs and recurring revenue—hospitals tend to stick with products they’re familiar with due to the risk of switching to untested suppliers and the extra costs of training staff to use the new products.
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