BD - Becton, Dickinson: More Boring Growth (Motley Fool)
Becton, Dickinson: More Boring Growth
Thursday November 3, 1:55 pm ET By Stephen D. Simpson, CFA
Becton, Dickinson (NYSE: BDX - News) may seem to be just a collection of boring businesses making things like syringes, reagents, and safety products. But I don't think shareholders are feeling too bored with today's strong stock performance. This company may never have the flash and sizzle of Intuitive Surgical (Nasdaq: ISRG - News) or even St. Jude (NYSE: STJ - News), but it generates a good bit of free cash flow and achieves a very strong return on invested capital.
The spark for today's jump seems to have come from the company's solid fourth-quarter earnings. BD's 10% increase in revenue surpassed both the average and high estimates from analysts. Likewise, the company overachieved on the earnings-per-share line. Margin performance in the quarter depends upon how you choose to treat equity compensation expense. With the expense, gross margin improved nicely but operating margin fell. Without the expense, both margins were higher.
Looking below the headlines, it seems that almost all of BD's units were pulling in the same direction. Each of the three major divisions (medical, diagnostics, and biosciences) had high single-digit revenue growth or better before backing out foreign currency benefits. Growth was strongest in the diabetes care business (up 17% as reported) and in immunocytometry (up 16.5%), and Pharmingen was the only separately reported segment to show a revenue decline -- it makes up all of about 2% of the company's revenue base.
The good news/bad news at Becton is that it's largely a fixed-cost business where more volume translates into incrementally more profit. Certainly, the company's margins suggest that there's more than enough business coming through to make for good profits and cash flows. That said, revenue guidance of about 6% growth for next year, along with about 10% earnings growth, does suggest that fast-paced growth is just not on the menu here.
This is a solid business that produces good margins, a great return on invested capital, and very good free cash flow. It's also a business that does not depend on a limited number of customers or a small number of high-priced unit sales to make the grade. While I'd be much more interested in the stock back around $50, even a mid-$50s price doesn't look too bad for long-term investors.
Thursday November 3, 1:55 pm ET By Stephen D. Simpson, CFA
Becton, Dickinson (NYSE: BDX - News) may seem to be just a collection of boring businesses making things like syringes, reagents, and safety products. But I don't think shareholders are feeling too bored with today's strong stock performance. This company may never have the flash and sizzle of Intuitive Surgical (Nasdaq: ISRG - News) or even St. Jude (NYSE: STJ - News), but it generates a good bit of free cash flow and achieves a very strong return on invested capital.
The spark for today's jump seems to have come from the company's solid fourth-quarter earnings. BD's 10% increase in revenue surpassed both the average and high estimates from analysts. Likewise, the company overachieved on the earnings-per-share line. Margin performance in the quarter depends upon how you choose to treat equity compensation expense. With the expense, gross margin improved nicely but operating margin fell. Without the expense, both margins were higher.
Looking below the headlines, it seems that almost all of BD's units were pulling in the same direction. Each of the three major divisions (medical, diagnostics, and biosciences) had high single-digit revenue growth or better before backing out foreign currency benefits. Growth was strongest in the diabetes care business (up 17% as reported) and in immunocytometry (up 16.5%), and Pharmingen was the only separately reported segment to show a revenue decline -- it makes up all of about 2% of the company's revenue base.
The good news/bad news at Becton is that it's largely a fixed-cost business where more volume translates into incrementally more profit. Certainly, the company's margins suggest that there's more than enough business coming through to make for good profits and cash flows. That said, revenue guidance of about 6% growth for next year, along with about 10% earnings growth, does suggest that fast-paced growth is just not on the menu here.
This is a solid business that produces good margins, a great return on invested capital, and very good free cash flow. It's also a business that does not depend on a limited number of customers or a small number of high-priced unit sales to make the grade. While I'd be much more interested in the stock back around $50, even a mid-$50s price doesn't look too bad for long-term investors.
posted at 1:42 p.m.
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