This medical device maker has now completed the spinoff of its diabetes products business (embecta). The move lets the firm focus on a plan to increase its revenue by 5.5% a year. That new strategy should also lift earnings per share by 10% annually.
And now that the pandemic is easing, we feel the firm is poised for solid gains over the next few years. That’s partly due to the spinoff but also the recent acquisition of pharmacy automation systems leader Parata Systems.
The stock trades at 18.9 times the company’s 2022 earnings forecast.
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BECTON DICKINSON & CO. is your #1 Spinoff Buy for 2022 (New York symbol BDX; www.bd.com) operates through three segments: Medical makes an array of devices for hospitals, doctors’ offices and other clients in health care; Life Sciences sells products for collecting and shipping specimens as well as equipment for detecting diseases; and Interventional makes stents, catheters, needles, incontinence devices, and surgical tools.
On January 1, 2018, Becton acquired rival C.R. Bard (old New York symbol BCR) for $25 billion. Thanks to that purchase, overall revenue jumped 43%, from $12.09 billion in 2017 to $17.29 billion in 2019 (fiscal years end September 30). However, revenue fell 1.0% to $17.12 billion in 2020. That’s mainly due to unfavourable exchange rates.
Revenue rebounded 18.3% to $20.25 billion in 2021. That reflects strong demand for products related to COVID-19, including rapid antigen tests and the more-accurate PCR (polymerase chain reaction) tests.
If you exclude unusual items, Becton’s overall earnings soared 54.2%, from $2.07 billion in 2017 to $3.36 billion in 2019. Due to more shares outstanding, per-share earnings rose 23.2%, from $9.48 to $11.68. A higher tax rate reduced earnings by 11.1% to $2.99 billion in 2020; per-share earnings declined 12.7% to $10.20. Driven by higher 2021 revenue, overall earnings for that year recovered 30.8% to $3.91 billion. Per-share earnings gained 28.2% to $13.08.
On April 1, 2022, Becton completed the spinoff of its Diabetes Care business (part of the Medical segment) as a separate, publicly traded firm called embecta Corp. (Nasdaq symbol EMBC). Investors received one share of embecta for every five common shares of Becton they held. As part of the spinoff, embecta paid $1.44 billion to Becton.
Becton is now using that cash to buy Parata Systems, a privately held firm that makes robotic equipment for pharmacies, as well as hospitals. The company will pay $1.525 billion for this firm when it completes the transaction in late 2023. The new operations will add $220 million to its annual revenue of $20.0 billion.
Becton has increased the annual dividend rate for investors each of the past 50 years; it intends to keep raising that dividend despite the embecta split. The current annual rate of $3.48 yields 1.4%.
Investors should expect Becton’s earnings in fiscal 2022 to range from $12.80 a share to $13.00 a share. The stock trades at 18.9 times the midpoint of that range. That’s a reasonable multiple, particularly as the company spends 7% of its revenue on research.
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